CIHM 
Microfiche 
Series 
({Monographs) 


ICIMH 

Collection  de 
microfiches 
(monographies) 


Canadian  Institute  for  Historical  Microreproductions  /  institut  canadien  de  microreproductions  historiques 


Technical  and  Bibliographic  Notes  /  Notes  techniques  et  bibliographiques 


The  Institute  has  attempted  to  obtain  the  best  original 
copy  available  for  filming.  Features  of  this  copy  which 
may  be  bibliographically  unique,  which  may  alter  any  of 
the  images  in  the  reproduction,  or  which  may 
significantly  change  the  usual  method  of  filming  are 
checked  below. 


D 
D 

D 

D 
D 

D 
D 
D 

D 
D 

n 


Coloured  covers  / 
Couverture  de  couleur 

Covers  damaged  / 
Couverture  endommagde 

Covers  restored  and/or  laminated  / 
Couverture  restaurde  et/ou  pellicul^e 

Cover  title  missing  /  Le  titre  de  couverture  manque 

Coloured  maps  /  Cartes  gtegraphiques  en  couleur 

Coloured  ink  (i.e.  other  than  blue  or  black)  / 
Encre  de  couleur  (i.e.  autre  que  bleue  ou  noire) 

Coloured  plates  and/or  illustrations  / 
Planches  et/ou  illustrations  en  couleur 

Bound  with  other  material  / 
Reli6  avec  d'autres  documents 

Only  edition  available  / 
Seule  Edition  disponible 

Tight  binding  may  cause  shadows  or  distortion  along 
interior  margin  /  La  reliure  serr^e  peut  causer  de 
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int^rieure. 

Blank  leaves  added  during  restorations  may  appear 
within  the  text.  Whenever  possible,  these  have  been 
omitted  from  filming  /  II  se  peut  que  certaines  pages 
blanches  ajout^es  lors  d'une  restauration 
apparaissent  dans  le  texte,  mais,  lorsque  cela  ^tait 
possible,  ces  pages  n'ont  pas  6\6  film^es. 


L'Institut  a  microfilm^  le  meilleur  exemplaire  qu'il  lui  a 
^t^  possible  de  se  procurer.  Les  details  de  cet  exem- 
plaire qui  sont  peut-6tre  uniques  du  point  de  vue  bibli- 
ographique,  qui  peuvent  modifier  une  image  reproduite. 
ou  qui  peuvent  exiger  une  modifteation  dans  la  m6tho- 
de  normale  de  filmage  sont  indiqu^s  ci-dessous. 

I     I  Coloured  pages  /  Pages  de  couleur 

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0   Pages  discoloured,  stained  or  foxed  / 
Pages  ddcolortes,  tachet^es  ou  piqudes 

I     I  Pages  detached  /  Pages  d^tach^es 

1^/]  Showthrough  /  Transparence 

I      I  Quality  of  print  varies  / 


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Quality  in^gale  de  I'impression 

Includes  supplementary  material  / 
Comprend  du  materiel  SU|  pl^mentaire 

Pages  wholly  or  partially  obscured  by  enata  slips, 
tissues,  etc.,  have  been  refilmed  to  ensure  the  best 
possible  image  /  Les  pages  totalement  ou 
partiellement  obscurcies  par  un  feuillet  d'errata,  une 
pelure,  etc.,  ont  6\6  filmtes  k  nouveau  de  fa^on  k 
obtenir  la  meilleure  image  possible. 

Opposing  pages  with  varying  colouration  or 
discolourations  are  filmed  twice  to  ensure  the  best 
possible  image  /  Les  pages  s'opposant  ayant  des 
colorations  variables  ou  des  decolorations  sont 
film^es  deux  fois  afin  d'obtenir  la  meilleure  image 
possible. 


I    /   Additional  comments  / 


Commentaires  suppl^mentaires: 


Pagination  is  as  follows:  [ij-xiii,  xvi-xxii,  [l]-627  p. 


Thit  item  is  fiimcd  at  tht  reduction  ratio  chaclced  below  / 

Ce  document  est  IWmi  au  taux  de  rMuction  indiqu4  ci-dessous. 


10x 

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22x 

26x 

30x 

1 

/ 

12x 


16x 


20x 


24x 


28x 


32x 


The  copy  filmtd  h«r«  has  b««n  raproducvd  thanks 
to  tha  ganarosity  of: 

National   Library  of  Canada 


Tha  imagas  appaaring  hara  ara  tha  bast  quality 
poasibia  considaring  tha  condition  and  lagibility 
of  tha  original  copy  and  in  kaaping  with  tha 
filming  contract  apacificationa. 


Original  copias  in  printad  papar  covars  ara  filmad 
baginning  with  tha  front  eovar  and  anding  on 
tha  last  paga  with  a  printad  or  illustratad  impraa- 
sion.  or  tha  back  covar  whan  appropriata.  All 
othar  original  copiaa  ara  filmad  baginning  on  tha 
first  paga  with  a  printad  or  illustratad  impraa- 
•Ion.  and  anding  on  tha  last  paga  with  a  printad 
or  illuatratad  imprassion. 


Tha  laat  racordad  frama  on  aach  microficha 
shall  contain  tha  symbol  —♦•  (maaning  "CON- 
TINUED ").  or  tha  symbol  V  (maaning  "END"), 
whichavar  applias. 

Mapa.  platas.  charts,  ate.  may  ba  filmad  at 
diffarant  raduction  ratios.  Thosa  too  larga  to  ba 
antiraly  inciudad  in  ona  axposura  Mf  filmad 
baginning  in  tha  uppar  laft  hand  cornar.  laft  to 
right  and  top  to  bottom,  as  many  framas  as 
raquirad.  Tha  following  diagrams  illustrata  tha 
mathod: 


L'axamplaira  film*  fut  raproduit  grica  i  la 
g^n^rosit*  da: 

Bfblfoth^ue  natfonalo  du  Canada 

Las  imagas  suivantas  ont  it*  raproduitas  avac  la 
plus  grand  soin.  compta  tanu  da  la  condition  at 
da  la  nattat*  da  I'axamplaira  film*,  at  tn 
conformit*  avac  las  conditions  du  contrat  da 
fiimaga. 

Laa  axamplairas  originaux  dont  la  couvartura  en 
pap iar  aat  imprim«a  sont  filmis  an  commandant 
par  la  pramiar  plat  at  an  tarminant  soit  par  la 
darni«ra  paga  qui  comporta  una  amprainta 
d  imprassion  ou  d'lllustration.  soit  par  la  sacond 
plat,  salon  la  cas.  Tous  las  autras  axamplairas 
originaux  sont  filmAs  w  commandant  par  la 
pramiira  paga  qui  comporta  una  amprainta 
d'imprassion  ou  d'lllustration  at  an  tarminant  par 
la  darniira  paga  qui  comporta  una  talla 
amprainta. 

Un  da«  tymbolaa  suivants  ipparaitra  sur  la 
darniAra  imaga  da  chaqua  microficha.  salon  la 
cas:  la  symbols  -^♦>  signifia  "A  SUIVRE"   la 
aymbola  V  signifia  "FIN". 

Las  cartaa.  planchaa.  tablaaux.  ate.  pauvant  iut 
film*s  i  daa  taux  da  reduction  diff*rents. 
Lorsqua  la  documant  ast  trop  grand  pour  «tra 
raproduit  an  un  saul  clich*.  11  ast  film*  *  partir 
da  I'angia  sup«riaur  gaucha.  da  gaucha  *  droita, 
at  da  haut  an  bas.  an  pranant  la  nombra 
d'imagaa  n*cassaira.  Laa  diagrammas  suivants 
illustrant  la  m*thoda. 


1 

2 

3 

1 

2 

3 

4 

5 

6 

MICtOCOPY    RESOIUTION   TEST   CHART 

(ANSI  ond  ISO  TEST  CHART  No   2) 


1.0 


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^  ^PPUSn  IIVHGE     I 

^K  '653   East   Main   Street 

^^S  Rochester.   New   York        14609       USA 

^g  (716)   482  -  0300  -  Ptione 

^B  (716)   288- 5989  -  Fox 


A 
C 
C 


Modern  Business 

CANADIAN   EDITION 

A  SERIES  OF   EIGHTEEN   TEXTS,   ESPECIALLY  PREPARED 

FOR  THE  ALEXANDER   HAMILTON  INSTITUTE  COURSE   IN 

ACCOUNTS,  FINANCE  AND  MANAGEMENT 


EDITED  BY 

JOSEPH   FRENCH  JOHNSON 

DKA!(,  N«W  YORK  CNIVKIISITY  Bl'Hiiol.  olf  COMUKRCK.  AcCiilNTS  AND  FINANCE 
NEW  VunK  CITV 

Title  Axilhor 

APPLIED  ECONOMICS James  Mayor 

ORGANIZATION  AND  MANAGEMENT  Lee  Galloway 

SELLING U.  S.  BcTLEB 

CREDITS Lee  Gallowat 

TRAFFIC S.  J.  McLean 

ADVERTISING Lee  Gallowat 

BUSINESS  CORRESPONDENCE    .      .  G.  B.  Hotchkiss 

ACCOUNTING  PRACTICE  .     .     .     .  l^^°  Greenclingeb 

I  E.  \V.  Wright 

CORPORATION  FINANCE  .     .     .     .  (  ^^'"-liam  H.  Locgh 

l  Fred  W.  Field 

MONEY  AND  BANKING     .     .     .     ./ ^ ^'"'  ^^""^  Howard 

I  W.    W.   SWAXSON 

BANKING  PRACTICE E.  L.  (Stewart  PA-rraRsox 

FOREIGN  EXCHANGE f  FRaxklin  Escher 

I  E.  L.  Stewart  Pattersox 
f  Thomas  Coxwat 
INVESTMENT  AND  SPECULATION     i  Albert  Atwood 

I  Fred  W.  Field 

INSURANCE (Edward  R.  Hardt 

I  Fred  W.  Field 

REAL  ESTATE /Walter  Lixdxer 

■  I  E.  W.  Wright 

AUDITING Seymour  Walton 

COST  ACCOUNTS       Stephen  W.  Oilman 

COMMERCIAL  LAW Walter  S.  Johxsox 


Selling,  Credit 
and  Traffic -^^ 

PART  I:    SELUNG  AND  BUYING 

BY 

RALPH  STARR  BUTLER 

AssaTAMT  nomio*  or  auionss  AoimnnBATiON  m  tmb  urnvzurry  or  Wisconsin 

PART  II:  CREDIT  AND  THE  CREDIT  MAN 

BY 
LEE  GALLOWAY 

AssuTANT  noriMOB  or  cnoooicc  and  inoustbt  m  mw  voix  mivnsm  kwml 
or  comoaci,  Accomm  and  miAMCB 

REVISED  BY 
W.  W.  SWANSON 

AUOCIATC  PROrESaOB  or  POUTICAL  MtaNCS  IN   QUEENS   UNIVERUTT 

PART  III:    CANADIAN  TRAFFIC 

BY 

HONORABLE  S.  J.  McLEAN 

mMBBi  or  BOAio  or  kauway  ooiaaisioiaas  roB  camada 


Modern  Business 

Canadian  Edition 

Volume  ill 


ALEXANDER  HAMILTON  INSTITUTE 
NEW  YORK 


\ 


f^/f 


C  V 


ComnoRT,  1011,  mi 
ALEXANDER  HAMILTON   INSTITUTE 

CarTMOiiT,  1012.  it 
ALEXANDER  HAMILTON   INSTITUTE 

CoPTmiOHT,    1913,  IT 

ALEXANDER  HAMILTON   INSTITUTE 

COPTBIORT,    1914,    IT 

ALEXANDER  HAMILTON  INSTITUTE 

COMBIOBT    IN   GbIAT  BmTAIN,    1014,   •¥ 

ALEXANDER  HAMILTON   INSTITUTE 


TABLE  OF  CONTENTS 


PART    I:     SELLING   AND   BUYING. 


CHAPTER    L 

THE  FACTORS  IN  DISTRIBUTION. 
nonoN 

1.     Importance  of  Problem  of  Distribution 1 

8.     Traditional  Factors  in  Distribution 8 

8.     Consumer g 

4.  Retailer 4 

5.  Jobber 5 

6.  \^anufacturer a 

7.  Semi-Jobbers  and  Manufacturing  Wholesalers    ...  6 

8.  Selling  Problem  of  Retailers 7 

9.  Retail  Selling  by  Means  of  Salesmen  Calling  upon  Con- 

sumer          8 

10.  Peddler *  g 

11.  Canvasser ••  0 

IS.     Specialty   Salesman 10 


CHAPTER    II. 
RETAIL   SELLING   AND   MAIL   ORDER    BUSINESS, 

is.     Retail  Stores 18 

14.  Advantages  of  Selling  Through  a  Retail  Store    .      .      .14 

15.  Disadvantages  of  Selling  Through  a  Retail  Store     .      .  15 

16.  Advantage  in  Purchasing  Power 16 

17.  Siae  Is  Most  Important I7 

18.  Retail  Selling  by  Mail Ig 

19.  Advantages  of  Retail  Selling  by  the  Mail-order  Method  19 

20.  Disadvantages    of    Retail    Selling    by    the    Mail-order 

Method 22 

21.  Combinations  of  Retail  Selling  Methods     .      .      .      .  «8 

V 


CONTENTS 


HcnoM 
2S. 
SS. 
S4. 
25. 
86. 


CHAPTER   III. 
SELLING  AT  WHOLESALE. 

tAtm 

Selling  Problem  of  Jobber S5 

Two  Methodii  of  Wholesale  Selling S6 

Wholesale  Selling  by  Salesmen     .      .' 27 

Wholesale  Selling  by  Mall SO 

Combination  of  Wholesale  Selling  Methods  ....  80 


CHAPTER    IV. 
PROBLEMS  OP   MANUFACTURER. 

57.  Manufacturers'  Selling  Methods 81 

58.  First  Problem  of  the  Manufacturer 81 

89.     Factors  in  Solution  of  First  Problem 88 

SO.     Nature  of  the  Product M 

SL     Business  Policy  or  Expediency S8 

89.    Advantages  of  Making  Direct  Sales  Only  to  Jobbers  85 

88.     Disadvantages  of  Making  Direct  Sales  Only  to  Jobbers  86 

84.  Advantages  of  Making  Direct  Sales  Only  to  Retailers  .  87 

85.  Disadvantages  of  Making  Direct  Sales  Only  to  Retailers  88 

86.  Advantages  of  Making  Direct  Sales  Only  to  Consumers  88 

87.  Disadvantages  of  Making  Direct  Sales  Only  to  Con- 

sumers        88 

88.  Second  Selling  Problem  of  Manufacturer     ....  89 

89.  Declining   Importance  of  Middleman 40 

40.  Jobber's  Place  in  Merchandising  System    ....  41 

41.  Agents,  Commission  Merchants,  and  Brokers    ...  48 


CHAPTER  V. 
SALES  DEPARTMENT  ORGANIZATION. 

42.  Principles   of  Organisation 46 

43.  Retail  Sales  Department  Organization 47 

44.  Merchandise  Manager 50 

45.  Buyers 52 

46      Sales-people 58 

47.  Variations  in  Departmental  Organization     ....  55 

48.  Advertising  Department 57 


CONTENTS 


▼U 


49. 
BO. 
Al. 
fiS. 
08. 
fi4. 
0fi. 


MM 

Lack  of  Uniformitj  in  WholeMle  Selling  Organiiationt  58 

Manager  of  Departnwnta 00 

Department  Managen 01 

Specialty  Salesmen CI 

General  Salesmen OS 

Jobber's  Advertising  Department .04 

Special  Application  of  the  Suggestive  Wholesale  Selling 

Organisation OS 


CHAPTER  VI. 
MANUFACTURERS'  SALES  DEPARTMENT  ORGANIZATION. 

50.     Dependence    of    Manufacturers'    Selling    Organiiation 

Upon  Selling  Methods 07 

57>  Two  Differences  Between  Manufacturers'  and  Whole- 
salers' or  Retailers'  Selling  Organiiations    ...  00 

58.     Sales  Manager 70 

50.     Superintendents  of  Different  Kinds  of  Selling  Activities  71 

00.  Salesmen 7S 

01.  Branch-Houses li 

OS.     Agents 7S 

08.     Manufacturers'  Retail  Stores 78 

04.  Mail-order   Department 78 

05.  Relation  of  Sales  and  Advertising  Departments  .  78 

00.     Credit  and  Traffic  Departments 75 

07>  Method  of  Adapting  the  Manufacturers'  Selling  De- 
partment Organisation  Chart 70 


CHAPTER   VII. 

METHODS  OP  SECURING  COOPERATION  BETWEEN  SELLING 
AND  OTHER  DEPARTMENTS. 

08.     Necessity  of  Inter-departmental  Cooperation     ...  78 

00.     Use  of  Tact  in  Securing  Cooperation 70 

70.  Profit-sharing  to  Induce  Cooperation 81 

71.  Committee  System  as  an  Aid  to  Cooperation     ...  82 

72.  Executive  Committee 84 

78.     Factory   Committee 87 


viii  CONTENTS 

UCnON  PAGE 

74.  Sales  Committee 88 

75.  Advertising  Committee 60 

76.  Office  Committee 89 

77.  Variations  in  System          90 

78.  Practical  Results  of  Committee  System 90 


r 


CHAPTER    VIII. 
THE  SALES  MANAGER. 

79.  Purpose  of  Selling  Campaign 92 

80.  Two  Chief  Factors  in  Selling  Campaign     ....  93 

81.  Qualifications  of  a  Sales  Manager 94 

82.  Selection  of  Salesmen 95 

83.  •  System  as  an  Aid  in  Selection 96 

84.  Personal  Interview 99 

85.  Appearance 99 

86.  Conversational  Ability 100 

87.  Force. — General  Information  and  Intelligence    .      .      .100 


CHAPTER    IX. 
METHODS  OF  TRAINING  SALESMEN. 

88.  Training  of  Salesmen 102 

89.  Training  in  Principles  of  Salesmenship 103 

90.  Training  in  Construction  and  Uses  of  Goods  to  be  Sold  105 

91.  Three  Methods  of  Training  Salesmen 106 

92.  Employment  in  the  Factory  Best  Method    .      .      .      .107 

93.  Training  in  Selling  Methods 108 

94.  Standard  Selling  Talks 109 

95.  Adaptation  of  Standard  Selling  Talks Ill 

96.  Meeting  Problems  Peculiar  to  a  Business    .      .      .      .112 


CHAPTER    X. 
SUPERVISION  OF  SALESMEN. 

97.  Sales  Manager's  Duties 114 

98.  Supervision  over  Particular  Sales 114 


CONTENTS 


u 


99. 
100, 
101. 
102. 
lOS. 
104. 
105. 
106. 
107. 
108. 
109. 
110. 


Supervision  over  General  A«tivitie> 114 

Personal   Interviews 115 

Keeping  in  Touch  with  'Salesmen  by  Letter     .      .      .116 

Competitive  Schemes  to  Promote  Selling  Efficiency     .  116 

House-Organs 119 

Selling  Conferences 120 

Other  Duties  of  Sales  Manager 121 

Compensation  of  Salesmen 121 

Salesmen's  Expenses 123 

Assignment  of  Sales  Territories 124 

Keeping  in  Touch  with  Salesmen 125 

Knowledge   of   the   Business   as   Factor   in   Promoting 

Sales  Department  Efficiency 126 


CHAPTER   XI. 
REPORTS  AND  DUTIES  OF  SALESMEN. 

111.  Credit  Reports 128 

112.  Purpose  of  Salesmen's  Reports 128 

118.     A  Typical  Salesman's  Report .129 

114.  Salesmen  Must  Observe  Closely ISO 

115.  A  Typical  Statistical  System ISl 

116.  Salesman's  Part  in  Promoting  Sales  Department  Effi- 

ciency         188 


CHAPTER  XIL 
PRINCIPLES  OF  SALESMANSHIP. 

117.  Definition  of  Salesmanship 186 

118.  Who  Is  a  Salesman? 186 

119.  Steps  in  a  Sale 188 

120.  Attracting  Attention 188 

121.  Arousing  Interest 141 

122.  Creating  Desire 143 

123.  Inducing  Resolution  and  Inciting  to  Action  .      .      .      .144 

124.  Importance  of  Steps  in  a  Sale 14^^ 


X  CONTENTS 

CHAPTER   XIII. 

QUALITIES  OF  THE  SALESMEN. 

sKcnow  p^„ 

lii').     Factors  in  a  Sale 14g 

12^i.     Personality  of  Salesmen 148 

1'27.     Inclination  for  Work I49 

128.  Mental  Ability 150 

129.  General  Education 151 

130.  Health 152 

131.  Importance  of  Appearance I53 

132.  Honesty I54 

133.  Sincerity I55 

134.  Fidelity 156 

135.  Courtesy 15g 

130.     Industry 157 

137.  Open-mindedness 158 

138.  Persistence I59 

13y.     Tact 159 

140.  Initiative 100 

141.  Knowledge  of  the  Business 16l 

142.  Confidence 1q4 

143.  Enthusiasm 1q5 

144.  Opportunities  in  Salesmenship 166 


145. 
14*;. 
147. 
148. 
149. 
150. 
151. 
152. 
153. 
154. 
155. 
156. 


CHAPTER   XIV. 
THE  BUYER  AND  HIS   WORK. 

Buying  the  Universal  Business  Activity 168 

Scope  of  Buyer's  Duties 169 

Buyer's  Problems 170 

Two  Opposing  Considerations I70 

Financial  Considerations 172 

Possibility  of  Depreciation 172 

Illustrations I73 

The  Task  of  the  Buyer 173 

Speculative   Buying I74 

Qualifications  of  Buyer 174 

Knowledge  of  the  House  by  Which  Buyer  Is  Employed  174 

Knowledge  of  Manufacturing  Processes 175 


L 


CONTENTS  xi 

racnoN  KMm 

157.  Familiarity  with  Departmental  Divisions  of  House     .  176 

158.  Acquaintance  with  Important  Employes 176 

159.  Knowledge  of  Demand 177 

160.  Buyer  for  Wholesale  or  Retail  Store 178 

101.     Knowledge  of  Goods  to  be  Purchased 179 

162.  Judging  Future  Prices 181 

163.  Knowledge  of  Sources  of  Supply 182 

164.  Importance  of  Location  of  Various  Houses  .      .      .      .183 

165.  Ability  of  Salesman's  House  to  Keep  His  Promises     .  183 

166.  Credit  Rating  of  Seller  * 184 

167.  Important  to  Know  Costs 184 

168.  Selling  Methods  of  Houses  Dealt  With 185 

169.  Variable  Price  Scales 186 

170.  Tact  in  Buying 186 

171.  Friendly  Relations  with  Salesmen 187 

172.  Other  Qualities  Important  for  Buyer  to  Possess    .      .188 

173.  Who  Should  Do  the  Buying? 188 

174.  Factory  Purchasing  Agents .      .189 


CHAPTER   XV. 
SYSTEM   IN  BUYING. 

175.  General  Systems  and  Specific  Conditions     .      .      .      .191 

176.  Requirements  of  an  Adequate  Purchasing  System    .      .192 

177.  Subject  Index 192 

178.  Firm  Index 194 

179.  Necessity  of  Cross-references  for  Buying  Data      .      .195 

180.  Catalogue  File 196 

181.  Quotation  File I97 

182.  Order  Record 198 

183.  Placing  Orders 200 

184.  Tracing   Orders 201 

185.  Checking  Deliveries 202 

186.  Checking  Partial  Deliveries 203 

187.  Checking  the  Invoice 204 

188.  The  Perpetual  Inventory 206 

189.  Modification  of  the  Typical  Purchasing  System  .      .      .   208 

190.  System  in  Retail  Buying 208 

191.  The  Jobber's  Purchasing  System 210 


Xll 


CONTENTS 


PART    II:    CREDIT   AND    THE    CREDIT   MAN. 

CHAPTER  I. 

NATURE  OF  CREDIT, 

sccnoN 

1.  Relation  of  Confidence  to  Business 212 

2.  Contracts  Support  Confidence 213 

S.     Money  a  Sign  of  Economic  Progress  .      .      .      ,      .      .214 

4.  Bargains  Wliich  Involved  Future  Delivery  .      .      .      .215 

5.  The  Relation  of  Money  to  _  Credit 2 16 

6.  Banking  and  Credit 217 

7.  Relation  of  Credit  to  Panics  and  Depressions    .      .      .217 

8.  Different  Degrees  of  Business  Confidence  Represented 

by  Different  Credit  Instruments 219 

9.  Time  as  a  Factor  in  Credit 221 

10.     Various  Classes  of  Credit 222 


11. 
12. 
13. 
14. 
15. 
16. 
17. 
18. 
19. 
20. 
21. 
22. 


CHAPTER   II. 
DIVISIONS  OF  CREDIT. 

Varieties  of  Business  Credit 225 

Personal  Credit 226 

Why  a  Personal  Credit  System  Is  Not  Well  Organized  226 

Reasons  for  Not  Making  Proper  Inquiries    ....  227 

Relation  of  Personal  Credit  tc  Other  Credits    .      .      .  232 

Effect  of  "Too  Ready  Credit"  upon  the  Consumer  .      .  233 

Other  Abuses  of  Credit 234 

Mercantile  Credit 235 

Factors  That  Hive  Changed  the  Credit  System     .      .  237 

The  Custom  of  Dating 238 

The  Book   Account gga 

Two  Methods  of  Assigning  Accounts 241 


CHAPTER   III. 
DIVISIONS  OF  CREDIT   (Continued). 

23.  Capital  or  Investment  Credit        .... 

24.  Elements  of  Safety  in  Capital  Credit     .      . 


243 


CONTENTS 


ziu 


MCnON 

25. 
S6. 
27. 
28. 
29. 
SO. 


Principal  Forms  of  Capital  Credit 245 

Principal  Sources  of  Capital  Funds 346 

Banking  Credit  and  Its  Relation  to  Commercial  Credit  .   246 

Limitation  of  Bank  Credit 247 

The  Credit  Latitude  of  a  Bank  and  a  Mercantile  House  248 
"Business  Paper"  and  "Loans  and  Discounts"    .      .      .249 


CHAPTER   IV. 
FUNCTIONS  OF  A  CREDIT  DEPARTMENT. 

81.  The  Fort  ng  of  Credit  Estimations .252 

82.  Credit  Extension  in  the  Wholesale  Trade     .      .      .      ,258 
38.     Granting  Credit  by  a  Manufacturing  Firm    .      .      .      .254 

84.  The  Giving  of  Credit  by  a  Retail  House 255 

85.  Installment  House  Credits 256 


86. 

87. 

88. 

89. 

40. 

41. 

42. 

48. 

44. 

45. 

46. 

47. 

48. 

49. 

50. 

51. 

52. 

53. 

54. 


CHAPTER  V. 
SOURCES  OF  CREDIT  INFORMATION. 

Three  Essentials  in  Credit  Giving 258 

Methods  of  Investigation g5g 

Testing  the  Reliability  of  a  Statement 259 

An  Example  of  Statement  Analysis 269 

The  Reporter  and  Ihe  Traveling  Representative     .      .  270 
The  Salesman  as  a  Gatherer  of  Information     .      .      .   272 

Agency   Method 273 

The  Commercial  Agency gw^ 

How  Information  Is  Collected 275 

Content  of  the  Agency  Reports 277 

Methods  by  Which  the  Information  Is  Distributed  .      .  278 

Cost  of  the  Agency  Service 279 

Sources  of  the  Information t^jQ 

Kinds  of  Reports ^so 

Criticism  of  Agency  Methods  and  Services  .      .      .      .281 
Credit  Cooperative  Methods— Special  Agencies      .      .  284 

Advantages  of  Interchange  System 291 

Banks  as  Sources  of  Information 292 

Attomey-at-law ggg 


XVI 


CONTENTS 


CHAPTER   VI 
CREDIT  PROTECTION 

SECTION  PAQB 

55.  Efforts  to  Secure  Protection 296 

56.  Credit  Insurance 297 

57.  Business  Houses  Classified  by  Credit  Underwriters      .   298 

58.  Arguments  in  Favor  of  Credit  Insurance 299 

59.  Weak  Points  in  Credit  Insurance SOO 

60.  National   Bankruptcy  Laws SOI 

61.  Advantages  of  the  Present  Law SOS 

62.  Meaning  of  Recent  Amendments 304 

6S.     Future  of  tlie  Bankruptcy  Law S06 

64.  Credit  Men's  Associations S07 

65.  National  Associations 308 

66.  Importance  of  Credit  Men's  Associations Sll 

67.  Relation  of  the  Credit  Man  to  the  Firm 312 

68.  An  Illustrative  Method — The  Mail,  Index  Cards,  etc.   .    31 S 

69.  Collection  Methods 317 

70.  Suspended  Accounts 318 

71.  Analysis  of  Credit  Information 319 

72.  Credit  Associations  in  Canada 325 

73.  Bankruptcy  Procedure  in  Canada 326 

74.  Some  Evils  of  Canadian  Bankruptcy  Laws  ....    329 

75.  Liquidation  in  England 332 


PART    III:     TRAFFIC 

CHAPTER    I 
CANADIAN  TRANSPORTATION 

1.  Early  Waterways 835 

2.  Improved  Hig!  ways 337 

.*?.     The  Canadian  Railway  System 338 

4.  Western  and  Northwestern  Railroads 340 

5.  Expansion  of  Canadian  Railway  System 340 

6.  Influence  of  Trimk  Lines 341 

7.  Railway  Geography 343 

8.  Freight   Resonrces 344 

9.  Distribution  of  Railway  Mileage 346 


CONTENTS 


xvu 


BBCnON  PAOB 

10.  Potential  Railway  Traffic 846 

11.  Actual  Traffic ., 8*7 

12.  Traffic  Interrelations  of  Canada  and  the  United  States      .   849 

13.  Volume  of  Tranbit      uvement 850 

CHAPTER    II 
FREIGHT  CLASSIFICATION 

14.  Classification  Fundamental 853 

15.  How  Classifications  Are  Built 856 

16.  Classifications  of  the  United  States 357 

17.  Canadian    Classification 858 

18.  International  Traffic 859 

19.  Expansion  of  Canadian  Classification 360 

20.  Quantity   Differences 362 

21.  Car  Measurements 864 

22.  Cost  of  C.  L.  and  L.  C,  L.  Shipments 365 

23.  Uniformity  in  Canada 866 

24.  Mixing  Privilege 367 

25.  Effect  on  Shippers  and  Consumers 368 

26.  Factors  Affecting  Classification 871 

27.  Value  of  the  Article 372 

28.  Bulk  and  Weight 874 

29.  Risk  Attached  to  Carriage 374 

80.  Facilities  and  Equipment  Required 875 

81.  Classification  in  Operation  in  Canada 877 

82.  False  Classification  and  Complaints 380 

CHAPTER    III 
FREIGHT  RATES 

88.     Importance  of  Freight  Traffic 381 

84.  Railway  Rates  of  Universal  Interest 382 

85.  Competition 883 

86.  Compared  with  Mercantile  and  Manufacturing  Business  384 

37.     Evils  of  Parallel  Lines 385 

88.     The  West  Shore  Case 387 

39.  "Postage  Stamp"  Rates 887 

40.  Distance  Rates 889 


XVUl 


CONTENTS 


■Et-riow  ,^0, 

41.  Rates  Based  on  Capitalizntion ggo 

42.  Physical  Valuation  as  a  Rate  Basis 891 

43.  Cost  of  Service 3Q2 

44.  What  is  Cost  of  Senice.> 394 

45.  What  the  Traffic  Will  Bear       .      .      .  *   .      .      .      .      .397 

46.  Principle  Applied  in  Department  Stores 393 

47.  Applied  to  a  Newspaper 393 

48.  Practical  Meaning  of  the  Term 399 

49.  View  of  Canadian  Manufacturers'  Association   .      .      .   401 

CHAPTER    IV 
FREIGHT  RATES  IN  PRACTICE 

50.  Class   Tariffs   and   Commodity   Tarififs 404 

51.  Comparisons  of  Freight  Traffic 406 

52.  Component  Factors  of  a  Rate 408 

53.  Distance  as  a  Factor  in  Rates 411 

54.  Competition  of  Lines  of  Different  Lengths     ....   414 

55.  Differential  Rates 41 5 

56.  Water  Competition 41g 

57.  Changing  Centers  of  Population 419 

58.  Compc'.ition  of  Port 420 

59.  Market  or  Trade  Competition 421 

60.  Improvements  in  Roadbed  and  Rolling  Stock  ....   423 


CHAPTER   V 
PHASES  OF  RATES  AND  TARIFF 

61.  Freight  Tariffs  and  the  Railway  Act 426 

62.  Standard  Tariff 426 

6S.     Special  and  Competitive  Tariffs 430 

61.     Transcontinental  Rates 433 

65.  Distributive  Rates 435 

66.  International  Rate  Case 436 

67.  Town  Tariffs  in  the  East 438 

68.  Some  Objections  Overcome 439 

69.  Export  and  Import  Rates 442 

70.  Low  Import  Rate  Justified 442 


CONTENTS  xix 

BicnoN  PAOB 

71.  Problem  in  Canada 448 

72.  Import  Rate  Anomalies 444 

73.  Attitude  of  Railways 445 

74.  Transit  Arrangements,  Stop-off,  etc 446 

75.  Changing  Destination  in  Transit 449 

76.  Concentration   Rates 450 

77.  Special   Rate   Reductions 451 

78.  Cartage  Sen-ice 451 

CHAPTER    VI 
PASSENGER  RATES 

79.  Water  and  Port  Competition  in  Passenger  Traffic .      .      .  454 

80.  Distance  Important  Factor 455 

81.  Time  Element 455 

82.  Expensive  Stations 456 

83.  Other  Factors 457 

84.  Passenger  Business  in  Practice 459 

85.  Passenger  and  Freight  Receipts  Compared  ....  460 

86.  Density  of  Traffic 461 

87.  Effect  of  Economic  Depression  on  Passenger  Business     .  462 

88.  Capacity  of  Cars 463 

89.  "Deadweight" 464 

90.  Passenger  Rates  and  the  Railway  Act  of  Canada.      .      .  466 

91.  Standard  Rates  in  Effect 467 

92.  Different  Kinds  of  Passenger  Tickets 468 

93.  Sleeping-car  service 470 

94.  Classified  Passenger  Rates 47 1 

95.  Passenger  Classes  in  Europe 472 

96.  Difficult  to  Compare  Traffic  Here  and  Abroad      .      .      .  474 


CHAPTER   VII 
PRACTICAL  PHASES  OF  RAILWAY  BUSINESS 

97.  Common  Law  Obligations  of  the  Railways     .      .      .      .476 

98.  Bill  of  Lading  and  its  Conditions 477 

99.  Liability 478 

100.     Ins^irance 480 


XX  CONTENTS 

BSCnON  "    BjjMi 

101.  Liability  as  a  Warehouseman ,      .  480 

lOS.  Loss  and  Damage 4gl 

lOS.  Payment  of  Charges 4g| 

104.  Forms  of  the  Bill  of  Lading 482 

105.  Due  Diligence 484 

106.  Actual  Car  Movements 484 

107.  Demurrage 485 

108.  Causes  of  Demurrage 486 

109.  Demurrage  and  Car  Shortage 487 

110.  A  Matter  of  Controversy 489 

111.  Higher  Demurrage  Charges 490 

112.  Average  Demurrage 493 

118.  Reciprocal  Demurrage 495 

114.  Railway  Interrelations  and  per  Diem  Charge  .      .      .      .   497 

115.  Interswitching 499 

116.  The  Work  of  the  Claims  Department 501 

CHAPTER    VIII 
EXPRESS  SERVICE 

117.  Express  Service  and  its  Scope 505 

118.  Early  History  of  Express  Companies 506 

119.  Express  Companies  in  Canada 508 

120.  Arrangements  with  Railways 309 

121.  Express  Classification 510 

122.  Value,  Weight  and  Space 511 

123.  Conditions  of  Carriage 512 

124.  The  Standard  Mileage  Tariffs 514 

125.  Differences  in  Traffic  Conditions 516 

126.  Four  Standard  Tariffs 516 

127.  Local  and  Transfer  Tariffs 518 

128.  Rates  as  Affected  by  Quantity 51 9 

129.  Freight  Rate  as  a  Basis 520 

ISO.  Special  Circulars 521 

131.  The  Graduate  Table 522 

132.  Rates  Not  Uniform 523 

133.  Single  Through  Rates 524 


CONTEXTS 


zzi 


CHAPTER    IX 
INLAND  WATER  TRANSPORTATION 

SECTION  '*« 

1  tH.  Water  Transportation  as  a  Rrgulator  of  Raten     .      .      .   Sib 

1S5.     Efficiency  of  Waterways 5*7 

186.     Canal  Terminals *** 

1S7.     Effect  of  Highway  Costs 349 

188.     Canadian  Lake  and  Canal  Route 3«9 

1.S9.     From  Georgian  Bay  to  Montreal 530 

140.  Ottawa  System 582 

141.  No  Canal  Tolls 53* 

142.  Great  Lakes  Traffic 532 

148.     The  Upper  Lakes 583 

144.     Character  of  Freight 584 

143.  Canadian  Grain 53.'i 

146.  Lake   Vessels 536 

147.  Formation  of  Canada  Transportation  Lines,  Ltd.      .      .    5'M 

148.  Advent  of  Large  Vessels 537 

149.  Loading  and  Unloading 538 

150.  Combined  Inland  and  Ocean  Traffic '■''9 

l;il.     Lake  Rates ' 

152.  Comparison  Between  Lake  and  Canal  Movements     .      .      v\ 


153. 

154. 

155. 

156. 

157. 

158. 

159. 

160, 

161. 

162. 

163. 

164. 


CHAPTER    X 

FOREIGN  TRADE  AND  OCEAN  TRANSPORT.\TION 

Canada's  Foreign  Trade 544 

Imports  from  Great  Britain 545 

United  States  Imports 545 

From  France 546 

From  Mexico 546 

Canadian  Tonnage 547 

Ballast 548 

Principal    Ports 549 

Montreal  Harbor 550 

Opinion  of  Mr.  Ross 551 

Insurance  and  the  St.  Lawrence  Route 552 

Subsidies  of  Steam  Ships 554 


'«»  CONTENTS 

•♦K<T|ON     • 

I(i3.  Factor.  Affecting  Ocean  Traffic  and  Rates  .      .  ^s' 

166.  Charter    Party "  '   ^^'.. 

167.  Space  and  Weight -      .      .  USH 

168.  Ocean  Traffic  Dislingnished  Ironi  Railway  Traffic  -iio 

169.  Effect  of  HarvcHts '    .      .      !  "   .1.10 

170.  Condition*  of  C'nrriagp .r,' 

171.  Ocean  Rates  a«  AiT.cting  Cnnndn  .      .      .      .      .      ,  ,sii3 

172.  Lumber  Rates •      •  .        • 

i73.  Position  of  Carriers 1/j. 

174.  Rate  "  Conferences  ••      .       .  -r' 

It  a.  New  Ocean  Routes -^- 

176.  Hudson   Bnv  Railway    ...                               •      •  • 

177.  Pacific   Route      ■•......],'   sll 

178.  Panama  Canal 560 


PAflB 
.     33;. 

.  55ti 
.  358 
.  !i!i9 
.  33f) 
.  36<) 
.  563 
.  3Cl 
.  3()4 
.  363 
.  3fi7 
.  3()7 
.  3()8 
.   369 


PART  I:     SELLING  AND  BUYING 


CHAPTER  I 

FACTORS  IN  DISTRIBUTION 

1.  Importance  of  problem  of  distribution. — The 
problem  of  distribution  must  be  solved  by  every  success- 
ful business  organization.  In  all  industries  the  profits 
ultimately  depend  on  the  ability  to  sell  goods  advanta- 
geously. A  factory  taay  possess  every  facility  for  eco- 
nomical production,  but  unless  the  selling  methods  of 
the  manufacturer  are  carefully  designed  to  meet  the 
peculiar  requirements  of  the  product  and  of  the  market, 
the  business  can  not  be  conducted  at  a  profit.  In  like 
manner,  a  non-manufacturing  industry  must  finally 
look  for  its  profits  to  the  development  of  economical 
and  suitable  methods  of  marketing.  The  two  great 
branches  of  merchandising — ^buying  and  selling — ^must 
receive  at  least  equal  attention  in  such  an  organization 
if  it  is  to  attain  the  maximum  degree  of  profit-making 
efficiency.  In  any  business,  therefore,  the  proper  devel- 
'  opment  of  the  sales  department  and  the  satisfactory 
solution  of  the  peculiar  selling  problems  that  it  has  to 
meet  are  vital  to  the  success  of  the  enterprise. 

The  problem  of  distribution  is  constantly  becoming 
more  difficult  of  solution.  In  former  times  trade 
channels  were  definitely  established,  and  the  manu- 
facturer had  little  choice  of  selling  methods.  Each 
class  of  distributers  occupied  a  fixed  place  in  the  chain 
of  distribution,  and  there  were  but  few  attempts  to  open 

III— I  1 


Si^LLING  AND  BUYING 


new  lines  of  contact  between  the  producer  and  the 
market.  Competition  was  not  so  keen  as  it  is  to-day. 
Fewer  people,  proportionately,  were  engaged  in  mer- 
cantile pursuits.  The  business  acumen  of  former  in- 
dustrial leaders  was  devoted  to  the  exploitation  of  new 
countries  and  new  regions,  rather  than  to  the  intensive 
development  of  a  constantly  narrowing  market.  The 
power  of  advertising  as  a  great  force  in  distribution 
was  little  appreciated,  and  it  had  scarcely  begun  to 
exercise  its  far-reaching  influence  on  the  long  estab- 
lished traditions  of  marketing.  Under  these  conditions, 
the  problem  of  selling  was  a  comparatively  simple  one. 
The  manufacturer  had  but  to  adopt  the  usual  methods, 
and  there  was  little  tendency  to  question  the  necessity  or 
the  value  of  the  services  rendered  by  the  distributer. 

To-day  conditions  are  altered.  There  is  little  respect 
for  traditional  methods  as  such.  Every  producer  and 
every  distributer  seeks  the  largest  possible  market  at 
the  least  possible  cost;  and  he  consciously  selects  the 
methods  that  are  best  suited  to  his  particular  case, 
without  regard  to  prevailing  customs,  unless  expediency 
or  their  real  value  dictates  a  compliance  with  them. 
Intense  competition  makes  it  necessary  for  the  man  who 
has  something  to  sell,  to  cultivate  relatively  unimportant 
markets  that  he  would  have  disdained  in  the  old  days, 
and  he  finds  in  advertising  an  ally  that  makes  it  possible 
for  him  under  certain  circumstances  to  develop  the  sell- 
ing methods  that  seem  to  be  best  suited  to  his  individual 
requirements,  whether  those  methods  follow  established 
usage  or  not. 

The  problem  of  selling  has  two  phases:  first,  the  de- 
termination of  the  market;  second,  the  selection  of 
methods  for  reaching  the  market.  In  the  case  of  cer- 
tain  classes   of  distributers   we  shall   find   that   their 


FACTORS  IN  DISTRIBUTION  3 

market  is  determined  for  them  because  of  the  nature  of 
their  activities.  Every  seller,  however,  must  meet  the 
question  of  selling  methods,  and  most  of  those  who  have 
anything  to  market  must  also  definitely  determine  upon 
the  field  they  are  to  cultivate. 

2.  Traditional  factors   in  distribution. — For  many 
years  it  was  generally  conceded  that  there  were  normally 
six  factors  to  be  considered  in  the  distribution  of  most 
commodities.     These  factors  were  as  follows : 
Manufacturer 
Commission  merchant 
Jobber 
Wholesaler 
Retailer 
Consumer 
At  present,  however,  except  in  a  comparatively  few 
lines  of  business,  the  chain  of  distribution  has  been 
shortened.     The  commission  merchant  or  broker  re- 
mains an  important  factor  chiefly  in  the  various  branches 
of  the  textile  industry,  and  in  the  distribution  of  raw 
food  products.     The  functions  of  the  jobber  and  the 
wholesaler  have  largely  lost  their  distinctive  features, 
and  the  two  words  are  practically  interchangeable  in 
business  usage.     As  a  consequence  of  this  simplification 
of  the  typical  chain  of  distribution,  it  is  necessary  to 
consider  in  detail  the  selling  problems  of  only  three 
classes  of  distributers— the  manufacturer,  the  jobber, 
and  the  retailer.     These,  with  the  consumer,  are  the 
normal  factors  to  be  considered  in  any  discussion  of 
marketing  problems  and  methods. 

3.  Consumer. — It  is  necessary  to  establish  a  definite 
meaning  for  the  name  of  each  of  these  classes,  before 
we  consider  in  detail  the  selling  problems  of  each.  A 
consumer,  according  to  the  Century  Dictionary,  is  "one 


4  SELLING  AND  BUYING 

who  destroys  the  exchangeable  value  of  a  commodity  by 
using  it."  In  other  weds,  he  buys  goods  for  consump- 
tion and  not  to  sell  them  again.  This  definition  is  so 
simple  that  there  ought  to  be  no  difficulty  in  deciding 
who  is  and  who  is  not  a  consumer.  There  is,  however, 
frequent  diflPerence  of  opinion  on  this  point.  For  in- 
stance, the  retail  grocer  may  insist  that  a  hotel  or  a 
restaurant  is  a  consumer,  and  that,  as  a  consumer,  it 
should  buy  its  supplies  from  the  retail  dealer  instead  of 
from  the  jobber.  The  wholesale  grocer,  on  the  other 
hand,  may  maintain  that  the  hotel  is  in  reality  a  dealer 
because  it  sells,  although  in  altered  form,  most  of  the 
food  that  it  buys.  In  general  business  usage,  the  term 
consumer  means  the  "ultimate  consumer"— the  individ- 
ual that  uses  the  things  he  buys  for  himself  and  does 
not  sell  them  again  either  in  their  original  or  altered 
form. 

4.  Retailer.— The  term   "retailer"   is   derived  from 
two  words  meaning  "to  cut  again."     It  was  originally 
applied  to  a  class  of  middlemen  who  purchased  cloth  by 
the  piece  or  in  quantities  and  then  cut  off  smaller 
amounts  for  sale  to  consumers.     Speaking  generally, 
the  modern  retailer  is  a  distributer  who  sells  to  the  con- 
sumer, as  distinguished  from  a  distributer  who  sells  to 
dealers.     Of  course,  one  distributer  who  would  other- 
wise be  classed  as  a  retailer  may  sell,  at  times,  to  other 
dealers.     When  he  does  so,  however,  he  must  be  classed 
as  a  jobber  in  those  particular  transactions,  and  not  as 
a  retailer.     A  retailer  may  also  sell  to  manufacturers, 
as  when  a  retailer  hardware  merchant,  for  example,  sells 
supplies  to  a  building  contractor.     This  does  not  alter 
his   classification.     Any  one   who  sells   goods   can   be 
classed  as  a  retailer  when  he  does  not  sell  to  other  deal- 
ers; and  for  practical  purposes  it  is  convenient  and  suf- 


FACTORS  IN  DISTRIBUTION 


ficiently  accurate  to  consider  a  retailer  as  a  distributer 
who  sells  chiefly  to  consumers. 

5.  Jobber. — A  jobber  may  be  defined  as  one  who 
buys,  usually  in  quantities,  for  the  purpose  of  selling 
the  same  goods  again,  without  alteration,  to  other 
dealers.  Tiiese  dealers  may  be  either  other  jobbers  or 
retailers.  But  whenever  one  who  is  otherwise  a  job^^er 
sells  goods  to  a  consumer,  so  far  as  that  particular 
transaction  is  concerned  he  ceases  to  be  a  jobber  and 
becomes  a  retailer.  We  have  already  suggested  that 
there  was  formerly  a  clear  distinction  between  the  func- 
tions of  the  jobber  and  the  wholesaler.  The  jobber 
bought  "jobs" — odd  lots  at  particularly  favorable 
prices,  and  disposed  of  them  sometimes  to  wholesalers 
and  soinetimes  to  retailers.  The  jobber  usually  had  no 
regularly  established  market,  while  the  wholesaler  ordi- 
narily supplied  a  more  or  less  permanent  list  of  custo- 
mers. This  distinction  no  longer  exists.  There  is, 
however,  even  to-day,  a  slight  difference  in  the  meaning 
of  the  terms,  which  it  is  well  at  times  to  bear  in  mind. 
The  jobber  always  buys  the  finished  goods  which  he 
sells  again  to  dealers.  The  wholesale  dealer,  on  the 
other  hand,  may  manufacture  the  goods  which,  when 
finished,  he  sells  in  quantities  to  the  trade.  A  manu- 
facturer who  sells  his  product  directly  to  retail  dealers 
would  more  properly  be  classed  as  a  manufacturing 
wholesaler  than  as  a  jobber.  This  distinction,  however, 
is  not  generally  r2Co,^nized  in  the  business  world,  and, 
as  the  selling  problems  of  the  jobber  and  the  whole- 
saler are  identical,  it  is  permissible  to  use  the  terms  in- 
terchangeably in  a  general  consideration  of  selling 
methods. 

6.  Manufacturer. — For  the  purpose  of  considering 
problems  of  distribution,  we  shall  use  the  word  "manu- 


6  SELLING  AND  BUYING 

facturer"  to  indicate  a  business  unit  that  has  charge  of 
the  combined  activities  of  producing  and  of  marketing 
goods.  It  includes  those  producers  who  manufacture 
from  raw  materials  as  well  as  those  who  purchase  al- 
ready manufactured  articles  and  work  them  up  into 
different  forms  or  assemble  them  with  other  parts  in  the 
production  of  a  larger  or  different  article.  For  in- 
stance, each  of  the  following  types  may  be  considered 
as  a  manufacturer: 

1.  The  farmer  who  raises  wheat  and  puts  the  raw 
product  on  the  market. 

2  The  miUer  who  purchases   wheat  and   produces 
flour. 

3.  The  baker  who  purchases  flour  and  uses  it  in  the 
manufacture  of  bread. 

Any  one  who  produces  something  and  sells  it  is  a 
manufacturer.     So  a  publisher  is  a  manufacturer;  like- 
wise the  small,  one-man,  cigar  factory;  as  well  as  a  great 
concern  like  the  American  Tobacco  Company.     If,  how- 
ever, any  producer  solves  the  sales  problem  by  making 
arrangements     to     dispose     of     his     entire     product 
to     some     individual     or     to     some     company     that 
is    to    take    the    entire    responsibility    of    market- 
ing   it,    then    the    original    producer    need    not    be 
considered  from  the  standpoint  of  selling.     There  are 
so-called  sales  companies  that  make  a  specialty  of  dis- 
posing of  a  manufacturer's  entire  output,  and  in  certain 
branches  of  the  textile  industry  commission  houses  con- 
tract to  distribute  the  products  of  the  mills.     In  these 
cases  the  manufacturer  really  has  no  problem  of  distri- 
bution, and  the  agency  that  handles  the  products  in  the 
open  market  has  to  meet  the  problems  that  the  manu- 
facturer would  otherwise  have  to  face. 
7.  Semi-jobbers   and    manufacturing   wholeaalers.— 


k 


FACTORS  IN  DISTRIBUTION  7 

In  many  cases  a  business  house  can  not  be  classified  e?> 
clusively  as  a  manufacturer,  a  jobber,  or  a  retailer.  lU 
methods  of  distribution  may  permit  its  classification 
under  two  or  even  all  three  of  these  headings.  If  a 
manufacturer  sells  only  to  jobbers,  he  can  not  be  classi- 
fied otherwise  than  as  a  manufacturer.  If  he  sells  also  to 
retailers,  he  is  a  wholesaler  as  well  as  a  manufacturer; 
and  if,  in  addition,  he  distributes  his  product  directly  to 
the  consumer,  he  must  also  be  considered  as  a  retailer. 
A  business  house  that  sells  to  consumers  as  well  as  to 
dealers,  is  both  a  jobber  and  a  retailer,  or  a  "semi-job- 
ber," as  it  is  usually  called.  Of  late  years  it  has  become 
customary  for  many  wholesale  houses  to  enter  the 
manufacturing  field  for  themselves.  Such  houses  may 
be  rightfully  termed  "manufacturing  wholesalers,"  or 
even  "manufacturing  jobbers,"  although  the  latter 
phrase  is  not  strictly  accurate.  We  shall  see  later  that 
this  invasion  of  the  field  of  the  manufacturers  by  whole- 
sale distributers  has  been  productive  of  many  serious 
complications  in  the  problem  of  marketing  methods. 

It  is  our  purpose  to  consider  briefly  some  of  the  sell- 
ing problems  of  the  retailer,  the  jobber,  and  the  manu- 
facturer, and  to  suggest  the  more  important  advantages 
and  disadvantages  of  the  selling  methods  that  are  open 
to  each  class. 

8.  Selling  problem  of  retailers. — We  have  already 
suggested  that  the  problem  of  selling  has  two  phases: 
first,  the  determination  of  the  market;  and  second,  the 
selection  of  methods  for  reaching  that  market.  The  re- 
tailer is  not  concerned  with  the  first  of  these  two  phases. 
Because  of  his  natural  position  in  the  system  of  distri- 
bution, he  is  not  required  to  make  a  definite  selection  of 
the  class  to  which  he  is  to  sell.  As  a  retailer,  he  must 
sell  chiefly  to  consumers.     Or,  expressing  the  idea  dif- 


«  SELLING  AND  BUYING 

ferently  and  perhaps  more  acurately,  his  market  is  con- 
fined to  those  who  are  not  dealers  in  the  things  he  has  to 
sell.  With  his  natural  market  determined  for  him  by 
the  terms  of  tJie  definition  of  the  class  to  which  he  be- 
longs, he  has  only  to  consider  the  various  methods  of 
reaching  that  market,  and  to  select  the  method  or 
methods  that  best  meet  the  requirements  of  his  individual 
case.  Normally,  there  are  three  ways  of  distributing 
goods  at  retail: 

Salesmen  or  canvassers  to  call  upon  the  consumer 

Retail  store 

]Mail-order  method 

9.  Retail  selling  by  mems  of  salesmen  calling  upon 
consumer.— Before  the  development  of  town  life,  when 
people   generally  were   able  to   supply   their   limited 
wants  by  direct  barter  with  their  neighbors,  the  itiner- 
ant merchant  practically  controlled  such  merchandising 
as  existed  outside  of  the  comparatively  few  metropolitan 
centers.     It  is  probable  that  there  were  traveling  mer- 
chants before  there  were  any  towns  at  all,  and  this  class 
of  dealers  can  therefore  be  considered  as  the  originators 
of  the  merchandising  system.     They  went  from  tribe  to 
to  tribe,  and  later  from  town  to  town  and  even  from 
country  to  country,  displaying  their  wares  before  any 
possible  purchaser  they  might  chance  to  meet. 

10.  Peddler.—There  are  three  modern  prototypes  of 
the  itinerant  merchant.  The  first  of  these  is  the  ped- 
dler, who  still  supplies  out-of-the-way  communities  with 
many  of  the  necessities  of  life.  The  characteristic 
feature  of  his  activities  is  that  he  carries  his  stock  of 
goods  with  him,  calls  on  those  who  may  be  interested  in 
his  wares,  and  makes  immediate  delivery  of  the  goods 
that  are  purchased.  This  method  of  distribution,  al- 
though useful  and  important  in  a  primitive  state  of 


FACTORS  IN  DISTRIBUTION  9 

society,  is  obviously  iinsuited  to  modern  conditions,  ex- 
cept in  unusual  cases.  Its  one  advantage  is  that  the 
customer  can  purchase  at  his  own  door.  He  is  saved 
the  necessity  of  doing  anything  except  to  pay  the  price 
and  receive  the  goods.  The  business  of  an  itinerant 
dealer,  however,  must  always  be  conducted  on  a  small 
scale.  Unless  operated  in  connection  with  some  other 
method  of  distribution,  it  can  never  develop  to  anj  great 
extent,  and,  therefore,  it  can  never  seriously  compete 
with  other  distributers  who  are  able  +o  effect  the  econo- 
mies that  are  always  incident  to  large-scale  business.  * 
11.  Canvasser. — A  second  type  of  the  modern  itiner- 
ant merchant  is  the  canvasser  who  solicits  orders  from 
house  to  house,  but  who  does  not  carry  his  stock  with 
him.  The  book-agent  is  an  example  of  this  type.  Sell- 
ing by  means  of  personal  solicitation  of  the  consumer 
is  expensive,  and  it  can  be  attempted  only  when  the 
article  to  be  sold  carries  a  large  profit.  This  method  of 
marketing  is  successfully  employed  when  the  article  is 
so  little  known  that  its  merits  must  be  presented  person- 
ally to  each  prospective  purchaser,  and  when  it  is  im- 
possible or  inexpedient  to  rely  upon  printed  advertising 
to  create  a  demand.  A  business  of  this  sort  need  not 
necessarily  be  conducted  on  a  small  scale.  There  are 
some  exceedingly  prosperous  business  houses  that  have 
made  a  careful  study  of  this  method  of  distribution  and 
have  built  up  national  organizations  of  house-to-house 
solicitors.  Publishers  of  books  and  maps,  and  manu- 
facturers of  stereoscopes  do  an  immense  business  of  this 
sort  chiefly  in  rural  and  semi-rural  districts;  and  some 
mail-order  houses,  like  the  Larkin  Company,  for  ex- 
ample, have  used  this  method  of  selling  successfully  to 
supplement  their  catalogue  business.  Nevertheless,  its 
possibilities  are  limited.     There  is  a  prejudice  against 


10 


SELLING  AND  BUYING 


the  house-to-house  solicitor.  His  powers  of  salesman- 
ship have  so  often  been  enlisted  m  the  support  of  arti- 
cles of  questionable  merit  that  the  vendor  with  a 
strictly  reputable  proposition  often  finds  his  usefulness 
limited  by  the  prejudice  that  exists  against  his  seUinff 
methods.  ® 

12.  Specialty  salesman.— A  third  type  of  the  dealer 
who  takes  his  wares  directly  to  the  consumer  may  be 
*^!™!lf  specialty  salesman,  for  lack  of  a  better  name. 
Ihe  difference  between  him  and  the  house-to-house  solic- 
itor IS  principally  one  of  degree  and  not  of  method. 
Instead  of  calling  upon  everybody,  he  carefully  selects 
his  prospective  customers  and  centers  his  attention  upon 
them.     This  slight  difference,  however,  is  unimportant. 
It  seems  to  be  a  far  cry  from  the  persistent  solicitor  for 
Lives  of  the  Presidents"  to  the  highly  paid  commercial 
ambassador  who  secures  a  railroad's  order  for  fifty 
thousand  dollars  worth  of  locomotives,  but  so  far  as 
their  selection  of  trade  channels  and  their  fundamental 
selling  methods  are  concerned,  tliey  must  be  placed  in 
approximately  the  same  classification.     They  both  deal 
directly  with  the  consumer,  and  they  both  ignore  the 
retail  store  and  the  mail-order  method  of  distribution. 
They  both  are  modern  prototypes  of  the  ancient  itiner- 
ant merchant.     The  one  adopts  this  method  of  market- 
ing because  he  believes  that  it  is  good  policy  to  do  so— 
the  other,  because  the  nature  of  his  goods  demands  it. 

A  specialty  salesman,  in  the  sense  in  which  we  are 
using  the  term,  usually  handles  a  line  that  is  of  so  techni- 
cal or  complicated  a  nature  that  it  must  be  carefully  ex- 
plained to  the  consumer  before  he  can  be  induced  to 
purchase.  An  example  of  this  class  is  the  adding-ma- 
chine  salesman.  He  often  has  to  prove  to  the  prospec- 
tive purchaser  that  an  adding-machine  is  necessary  in 


FACTORS  IN  DISTRIBUTION 


11 


the  "prospect's"  business,  and  then  he  has  to  prove  that 
his  particular  machine  is  preferable  to  any  other.  The 
same  is  true  of  the  life  insurance  solicitor.  Sometimes 
an  article  that  is  originally  introduced  to  consumers  by 
specialty  salemen  becomes  so  well  known  that  it  is  later 
handled  profitably  through  the  medium  of  regular  re- 
tail stores.  In  some  lines,  however,  the  specialty  sales- 
men are  continued  long  after  the  article  has  become 
perfectly  familiar  to  the  public.  This  is  usually  the 
case  when  the  demand  is  comparatively  limited  and  the 
competition  is  severe.  The  typewriter  business  illus- 
trates this  condition. 

In  certain  instances  there  is  no  other  selling  method 
possible  than  direct  contact  with  consumers  by  the  use 
of  salesmen  to  solicit  their  business.  Locomotives, 
obviously,  could  not  be  sold  in  a  retail  store  or  by  mail. 
It  is  equally  obvious  that  not  much  life  insurance  would 
be  sold  if  every  man  who  ought  to  carry  insurance  were 
left  alone  to  discover  his  own  need  and  to  call  at  the 
office  of  the  agent  on  his  own  initiative;  although  adver- 
tising can  do  much  to  supplement  the  work  of  the  solici- 
tor in  this  as  in  other  fields.  The  insurance  business, 
however,  presents  peculiarities  that  are  not  typical  of 
ordinary  merchandising.  Speaking  generally,  very 
high-priced  articles  can  probably  be  sold  more  success- 
fully and  economically  by  personal  solicitation  of  the 
consumer  than  by  any  other  method.  In  the  case  of 
low-priced  articles,  however,  the  method  is  undoubtedly 
expensive  and  appreciably  increases  ^he  cost  of  the 
goods  to  the  consumer.  A  dealer  entering  upon  a  busi- 
ness in  which  this  selling  method  is  customary  would 
ordinarily  have  to  adopt  the  same  method  to  get  his  share 
of  the  trade.  There  are  many  business  houses,  how- 
ever, employing  only  store  salesmen  assisted  by  effec- 


la 


SELLING  AND  BUYING 


tive  advertising,  who  have  competed  successfully  with 
other  houses  in  the  same  line  who  relied  solely  upon  their 
outside  salesmen.  Under  normal  conditions  it  would  be 
a  mistake  to  inaugurate  an  expensive  system  of  local 
and  traveling  salesmen  to  sell  goods  to  consumers  if 
competitive  conditions  did  not  clearly  demand  it. 


CHAPTER  II 


RETAIL  SELLING  AND  MAIL  ORDER  BUSINESS 


18.  Retail  stores. — The  retail  store  is  of  almost  equal 
historic  importance  with  the  itinerant  merchant  as  a 
means  of  reaching  the  consumer.  For  many  years  after 
the  development  of  town  life  and  before  the  days  of 
cheap  and  easy  means  of  communication,  the  local  shops 
practically  controlled  the  distribution  of  goods  at  retail. 
Its  advantages  proved  to  be  so  remarkable  that  even  the 
modem  development  of  land  and  water  transportation 
has  scarcely  affected  its  influence;  and  to-day  certainly 
90  per  cent  of  such  staples  as  groceries,  clothing,  drugs, 
dry-goods,  etc.,  are  still  distributed  through  the  retail 
store.  In  considering  the  advantages  and  disadvan- 
tages of  this  method  of  marketing,  it  is  necessary  to 
have  in  mind  an  establishment  that  confines  its  activities 
strictly  to  what  is  usually  termed  "over  the  counter" 
trade.  It  may,  and  it  usually  does,  receive  some  orders 
by  telephone,  and  it  frequently  delivers  goods  to  cus- 
tomers. Its  delivery  clerks  may  call  upon  the  regular 
customers  and  solicit  their  orders  for  the  day,  although 
this  expensive  custom  is  being  supplanted  by  the  in- 
creasing use  of  the  telephone.  Retail  dealers  in  certain 
rural  districts  stock  up  wagons  with  salable  merchan- 
dise and  dispose  of  the  load  by  making  house-to-house 
calls  upon  the  farmers  in  the  neighborhood;  and  very 
many  retail  establishments  combine  selling  by  mail  with 
the  ordinary  distribution  through  regular  store  chan- 
nels.    The  typical  retail  store,  however,  does  neither  of 

13 


14 


SELLING  AND  BUYING 


these  thin^,  and  it  is  the  typical  retail  store  that  we 
are  now  considering.  This  arbitrary  limitation  of  the 
meaning  of  the  term  should  be  can- fully  borne  in  mind 
dunng  the  discussion  of  selling  methods. 

14.  Advantages  of  selling  through  a  retail  store.— 

1.  The  purchaser  likes  to  see  what  he  is  buying.  He 
can  go  to  the  store  and  actually  pick  out  the  article  he  is 
to  get.  He  does  not  run  the  risk  of  dissatisfaction  that 
is  sometimes  connected  with  ordering  from  sample  or 
from  a  catalogue  description.  Or,  if  the  customer 
does  not  visit  the  store,  he  can  order  by  telephone  and 
discuss  goods  and  prices  in  detail  with  the  dealer. 

2.  The  store  and  the  consumer's  residence  are  usually 
conriparatively  close  together.  Delivery  can  be  made 
without  the  delay  that  is  frequently  incident  to  the  proc- 
ess of  ordering  from  a  distant  distributer. 

8.  The  store-keeper,  particularly  in  a  small  town,  is 
ordinarily  on  friendly  terms  with  most  of  his  cus- 
tomers. He  can  readily  build  up  a  clientele  of  personal 
friends  and  acquaintances  whose  good  will  is  valuable. 
A  long  period  of  fair-dealing,  of  course,  will  also  estab- 
lish a  good-will  for  the  establishment  that  dea^^  at  long 
range  with  its  customers,  but  the  influence  of  a  distant 
dealer  upon  his  customer'?  can  never  be  so  strong  as  that 
which  the  local  merchant  has  upon  his  neighbors. 

4.  As  the  patronage  of  the  retail  store  is  generally 
limited  and  local,  the  owner  is  in  a  position  readily  to 
adapt  his  stock  to  local  needs,  and  to  hold  trade  by 
catering  to  individual  and  neighborhood  peculiarities*. 
A  certain  men's  furnishing  store  in  one  of  the  small  cities 
of  the  country  maintains  a  careful  card  record  of  the 
peculiarities  and  tastes  of  each  of  its  regular  customers. 
n  hen  a  man  enters  the  store  to  buy  a  hat,  he  is  im- 
mediately offered  a  hat  of  the  same  style  that  has  ap- 


RETAIL  SELLING 


\!i 


pealed  to  him  before;  and  when  the  dealer  wants  to  dis- 
pose of  an  odd  lot  of  shirts,  he  sends  personal  notices  to 
his  customers  who  wear  the  sizes  that  are  included  in 
the  lot.  No  inducements  of  price  elsewhere  could  per- 
manently alienate  the  customers  of  this  store. 

3.  In  the  case  of  error  in  fillinfr  the  order,  or  dissatis- 
faction of  any  sort  with  the  goods  that  are  delivered,  the 
adjustment  can  l)e  made  more  quickly  by  the  local  store 
than  by  its  distant  competitor.  "Satisfaction  guaran- 
teed, or  money  refunded"  is  becoming  the  slogan  of  a 
constantly  increasing  list  of  local  retail  establishments, 
and  the  store  that  adopts  this  policy  has  a  strong  hold 
upon  its  customers. 

6.  The  local  retail  store  is  an  important  factor  in  the 
business  life  of  the  community.  Its  owner  is  usually  a 
resident  of  the  city  in  which  it  is  located.  Its  force  of 
employes  is  largely  recruited  from  its  immediate  vi- 
cinity. Their  prosperity  depends  upon  its  success,  and 
they  form  a  most  effective  force  of  personal  advertisers. 
The  owner  can  appeal  to  civic  pride  in  urging  support 
of  home  institutions  against  out-of-town  competition. 
The  civic  consciousness  of  American  communities  is  be- 
coming a  force  to  be  reckoned  with,  and  the  local  mer- 
chant can  use  this  spirit  to  his  own  advantage. 

7.  The  granting  of  credit  to  consumers  usually  re- 
(juires  familiarity  with  their  economic  condition.  The 
local  dealer  can  acquire  this  more  easily  than  anyone 
else;  accordingly,  it  is  more  customary  for  credit  to  be 
extended  by  local  merchants  than  by  mail-order  houses. 
If  the  retail  store-keeper  does  grant  credit j  he  has  a  hold 
upon  his  trade  that  can  not  be  secured  by  mail-order  com- 
petitors who  customarily  do  a  strictly  casli  business. 

15.  Disadvantages  of  selling  through  a  retail  store. — 
1.  Its  field  for  development  is  necessarily  limitet. 


16 


SKLLINC,  AND  BUYING 


outside  of  it.  in  " e.H',r         uu""*'  *''"'f'"<^'  "P'^'-'-te 
reached  a  c erta^tt  '  X'^^^'^"^'     After  it  ha. 

growth  is  limi :  stri  ?i, ;  the  r'T"^"*'  "^  f"^'-" 

triet  that  is  direct  v   ,1/     .  *velopme„t  of  the  dis- 
is  .situated.  ^        """^  *°  *''^  '-««'■■'>■  in  which  it 

^J^z'-j.z  :r  re;:  r  "^, '-""'--  ■'  ^^ 

■    ss  condition,      A   """'"''f*^'^  '>>'  adverse  local  busi- 

-dustrial  dXrbat J™  Tt  ^'"'^  .°^  "'"^  -™- 

severely  the  trade  Of    vVme^rant'L^:"'  '"  '"'^^* 
3-  If  it  does  a  crdit  1.  '      *'"' '^'"""'"'■ity. 

t-rough  had  debt;::^'  i-zr::;;:,™-'  r^-.'- 

vantage  with  resn«.t  t„  •»    ..  '  "  '"  *'  «  d  sad- 

petitofs.  ^   *"  "'  ^P»t-™sh"  mailorder  com- 

otl'er™Mrn!:an'  "Sfo''"t""  '"""  "  Jo""-  - 
in  prices  with  Z  distr  butr' 'tb  '/k  ""'  "'""''^  ^""P^t^ 
ing  connections      Th td  ^    """  """''^  *■«»  buy 

der  house,  because^t  L  .  "'  '"'"""  """  ""  '"'"■'-°^- 
sell  the  tel  retaU  ore  T  r"*'""  '""'^^'  "">  ""der. 
>.e  un  ,,,_  ..though  it'- tren"::!'™"™  '"'■'"' 

trihi^'btrsia^"^  ^"'"— ■^''- « -^.v 

'argely  deter^Cd  hv  twl  T  T'"'^''  ""'"«  ?"-  « 
which  he  buys  the  Ids  and  T.^"'-  '""^  P™  "* 

«i"--    It  is  imposfble  ;o"^'     T**'  *"'  ""■' '"'  <'«'ribu. 

""vantages  posses^d  brtKr  fT,  *"'  "''"■•™ 
n.ail-ordcr  house  with  res  pit  t"  "^'ff"''  «nd  the 
Kitlier  of  these  classc,  IfT!  •      ™"  °'  distribution. 

-llingandope^a  ~n^:t^^^^^^^  "'"•^'  •"•-  '-" 
"f  certain  articles  under  certan  .v'*""' "' '"-^  ^'''■^ 
^^  -.  inherent  advantay::rtrX:U:'t 


RETAIL  SELLING 


17 


must  be  with  respect  to  its  j)urchasing  power.  There  is 
nothing  in  the  nature  of  the  mail-order  house  that  gives 
it  the  power  to  command  more  direct  buying  connections 
than  the  local  retail  store  can  command.  Normally,  the 
retail  dealer  in  staple  lines  buys  from  a  jobber.  Nor- 
mally, also,  the  mail-order  house  that  buys  the  same 
goods,  in  the  same  quantities,  must  likewise  purchase 
from  a  jobber. 

If  traditional  trade  channels  were  as  much  respected 
now-a-days   as   they   were   only   half  a   century   ago, 
the  discussion  of  this  subject  could  end  here.     It  is, 
however,  coming  more  and  more  to  be  the  case  that 
the  ability  to  command  direct  buying  connections  de- 
pends solely  on  the  ability  to  buy  in  quantities.     In 
other  words,  many  manufacturers  prefer  to  sell  to  job- 
bers,  because  the  jobber  usually  can   buy  in  larger 
quantities  than  the  average  retailer;  but  if  the  business 
of  a  retailer  reaches  such  proportions  that  he  can  buy 
in  as  large  quantities  as  the  ordinary  jobber,  some  manu- 
facturers are  often  willing  to  sell  directly  to  him  and  to 
allow  him  practically  the  same  price  that  the  jobbers 
have  to  pay.     There  are  many  retail  establishments 
whose  buying  power  is  far  greater  than  that  of  the 
average  jobber;  and  thus,  because  of  their  immense  dis- 
tributing facilities,  they  are  able  to  purchase  a  large  list 
of  articles  directly  from  the  manufacturers.     It  makes 
no  difference  whether  they  are  local  retail  merchants  or 
mail-order  distributers — the  ability  to  buy  in  quantities 
is  frequently  all  that  determines  the  price  and  secures 
for  them  direct  buying  connections. 

17.  Size  is  most  important. — The  general  question, 
therefore,  finally  resolves  itself  into  this:  Which  is  the 
more  likely  to  develop  to  such  a  size  that  it  can  com- 
mand direct  buying  connections  and  the  resultant  lower 

III — 2  * 


18 


SELLING  AND  BUYING 


prices— a   local   retail   establishment   or  a   mail-order 
house?     When  the  question  is  presented  in  this  form,  it 
can  not  be  denied  that  the  advantages  lie  with  the  mail- 
order house,  when  the  conditions  with  respect  to  capital 
and  managerial  ability  are  equal  and  the  article  to  be 
sold  lends  Itself  equally  well  to  either  method  of  distri- 
bution.    This  is  true  simply  because  the  number  of  peo- 
ple who  may  be  considered  possible  customers  of  the 
local  retail  store  is  necessarily  limited,  while  the  possible 
area  of  operations  of  the  mail-order  establishment  is 
practically  unlimited.     If,  therefore,  a  large  mail-order 
house  makes  better  prices  than  a  small  retail  store,  it  is 
not  because  one  is  a  mail-order  house  and  the  other  is  a 
retail  store.     It  is  chiefly  because  one  is  large  and  the 
other  is  small. 

The  small  mail-order  house  (of  which  there  are  many) 
labors  under  the  same  selling  disadvantages  as  the 
small  retail  store.  The  common  custom  of  making  the 
general  statement  that  mail-order  houses  can  usually 
undersell  local  retail  stores  is  due  to  two  things:  first 
the  mistaken  idea  that  all  mail-order  houses  are  large' 
and  second,  the  fact  that  mail-order  dealers  ordinarily 
confine  their  operations  to  districts  where  they  are  not  in 
direct  competition  with  large  retail  establishments. 

18.  Retail  selling  hy  mail— The  most  recently  devel- 
oped system  of  distribution  of  goods  at  retail  is  the  mail- 
order method.     The  application  of  the  mail-order  princi- 
ple during  the  past  ten  or  twenty  years  has  had  an  ex- 
traordinary growth.     It  has  probably  been  the  most  im- 
portant  factor  in  the  re-arrangement  of  selling  methods 
and    the    a  tered    attitude    toward    traditional    trade- 
channels,  which  are  characteristic  of  modern  merchan- 
dising.    Possibly  its  most  marked  influence  is  seen  in  the 
movement  among  a  large  number  of  manufacturers  to 


RETAIL  SELLING 


19 


free  themselves  from  dependence  on  the  middleman  and 
to  add  the  functions  of  a  retailer  to  their  ordinary 
manufacturing  activities.  The  jobber  and  the  purely 
retail  distributer,  too,  have  found  the  mail-order  method 
of  selling  immt  tisely  effective  in  increasing  their  area 
of  influence  and  in  developing  new  lines  of  contact  with 
the  consumer. 

The  remarkable  growth  in  the  mail-order  business 
has  been  fostered  by  two  important  commercial  develop- 
ments—the cheapening  and  quickening  of  methods  of 
communication  and  transportation,  and  the  remarkable 
growth  in  the  realization  of  the  possibilities  of  advertis- 
ing. To  order  anything  by  mail  fifty  years  ago  was  to 
invite  delay  and  dissatisfaction,  and  to  solicit  mail  orders 
was  to  arouse  suspicion  and  distrust.  The  dignifying 
of  advertising  and  the  achievements  of  steam  and  elec- 
tricity have  changed  all  this.  To-day  there  is  probably 
not  an  article  of  common  or  uncommon  use  whose  pur- 
chase can  not  be  effected  by  a  customer  a  thousand  miles 
away  abnost,  if  not  quite,  as  satisfactorily  as  if  it  were 
bought  directly  over  the  counter  of  a  retail  store. 

19.  Advantages  of  retail  selling  by  the  mail-order 
method. — 

1.  Physically  speaking,  the  field  for  development  is 
practically  unlimited.  Operations  can  extend  as  far  as 
the  postal,  telegraph,  freight,  and  express  systems  reach. 

2.  As  has  been  already  suggested,  the  unlimited  field 
for  development  makes  it  possible  for  the  mail-order 
house  to  grow  to  larger  proportions  than  the  local  retail 
store,  whose  customers  must  necessarily  come  from  a 
narrowly  defined  area.  Because  increased  size  means 
increased  buying  power,  the  large  mail-order  house  is 
sometimes  able  to  make  a  better  price  to  the  consumer 
than  the  small  local  establishment  can  profitably  meet. 


no 


SKLLING  AND  BUYING 


3.  Its  wide  area  of  operations  frees  the  mail-order 
house  from  the  influence  of  purely  local  conditions  of 
busmess  depression.     Only  a  wide-spread  industrial  or 
financial  difficulty  can  seriously  affect  its  business      For 
example,  if  there  were  a  prolonged  strike  of  mi     rs  in 
the  anthracite  coal  region,  every  retail  store  in  Scranton 
and  in  the  other  towns  of  the  district  would  suffer 
severely  because  of  the  decreased  buying  power  of  its 
customers.     If  there  were  a  mail-order  house  in  Scran- 
ton, however,  that  operated  generally  throughout  the 
i.ast,  Its  trade  in  the  anthracite  region  would  probably 
be  only  a  small  part  of  its  entire  business,  and  decreased 
returns  from  that  district  would  not  seriously  affect  its 
total  sales. 

4.  The  only  overhead  charges  of  a  mail-order  house 
are  usually  incurred  in  the  maintenance  of  offices  and 
warehouses.  Sample-rooms  and  sales-rooms  are  not 
needed. 

5.  Large  stocks  need  not  be  carried.     As  a  matter 
of  fact,  many  articles  listed  in  mail-order  catalogues  are 
not  carried  in  stock  at  all.     When  orders  for  these  arti- 
cles are  received,  they  are  forwarded  to  the  manufac- 
turer and  shipment  is  made  directly  from  the  factory  to 
the  customer.     This  is  one  of  the  greatest  advantages  of 
the  mail-order  method  of  distribution.     The  local  retail 
store  frequently  ties  up  its  capital  in  large  quantities  of 
slowly  moving  stock.     It  has  to  have  on  hand  the  goods 
for  which  there  is  likely  to  be  any  demand,  and  its  cus- 
tomers are  usually  unwilling  to  wait  until  the  dealer  can 
order  from  his  jobber  the  things  that  thev  want.     When 
they  order  from  a  mail-order  house,  however,  they  ex- 
pect some  delay  in  delivery  of  the  goods,  and  the  mail- 
order  dealer  has  opportunity  to  secure  outside  of  his 
stock  the  articles  ordered  that  he  may  not  have  on  hand 


RETAIL  SELLING 


81 


6.  The  cost  of  a  selling  organization  is  saved. 

7.  There  is  an  element  of  chance  about  ordering  from 
a  mail-order  house— a  speculative  interest  in  the  value  to 
be  received— whidi  seems  to  attract  trade.  A  con- 
sumer may  see  an  article  many  times  in  his  local  store 
without  becoming  interested  in  it;  while  the  same  article 
offered  for  sale  in  a  mail-order  catalogue  or  advertised 
attractively  in  some  publication  may  arouse  in  him  a 
desire  for  its  acquisition.  The  appearance  of  the  actual 
article  may  not  be  so  effective  in  arousing  interest  as  a 
picture  of  it  coupled  with  an  alluring  description. 

8.  The  catalogue  of  the  mail-order  dealer  represents 
his  entire  stock.     This  catalogue  is  always  accessible  in 
the  home  of  the  consumer.     It  is  a  more  simple  matter 
to  turn  its  pages  than  it  is  to  gain  a  knowledge  of  the 
complete  stock  of  a  store  by  personal  inspection.     The 
mail-order  purchaser,  therefore,  is  likely  to  order  a 
larger  assortment  of  merchandise  than  the  "over-the- 
counter"  customer.     The  consumer  wishes,  perhaps,  to 
order  a  single  article.     He  looks  up  prices  and  grades  in 
the  mail-order  catalogue.     While  doing  so  he  involun- 
tarily sees  advertisements  of  other  articles  that  may  in- 
terest him,  with  the  result  that  his  order  usually  includes 
a  greater  assortment  than  he  at  first  intended  ordering. 
The  mail-order  house  would  not  have  this  advantage  if 
all  retail  clerks  were  real  salesmen.     Too  frequently 
they  merely  supply  the  customer's  expressed  require- 
ments, and  make  no  effort  to  interest  him  in  anything 
except  what  he  asks  for.     The  retail  store  clerk  should 
take  a  lesson  from  the  jobber's  traveling  salesman  who 
usually  canvasses  the  retailer's  entire  stock  before  he  is 
convinced  that  he  has  secured  the  largest  possible  order. 

9.  The  mail-order  business,  with  few  exceptions,  is 
conducted  on  a  strictly  "cash  in  advance"  or  "cash  on 


.-••^ 


22 


SELLING  AND  BUYING 


delivery    basis.    Customers  do  not  expect  credit  and 

avoids  bad  debts,  and,  to  this  extent,  has  an  advanw 
over  h,s  local,  credit-granting  competitor.  * 

msinl~  ir"^"""*'  "  "■"  "f»  "f  *'"  mailorder 
bus  mess.    Heavy  expenditures  for  publicity  are  abso- 

thl tstTT  J"  ™?  ™'"  "'-  -l-ses  -a"e 
the  cost  of  sellmg  by  mail  fully  as  great  as  the  cost  of 
other  methods  of  distribution. 

2.  The  mail-order  house  must  combat  the  active  an- 

in  which  It  operates.    It  must  do  this,  cluefly,  by  lower 
pnces,  superior  goods,  and  efficient  service.    It  is  hl^ 
pered  on  all  sides  by  the  organized  oppo  tion  ^f  ^Z 

secu- tr       f      f  «f««n'»tions  is  often  sufficient  to 

Xl^^      ™''  °'  *"'  ''"^^'"'"'"'^"*  °^  tymailtder 

8.  It  is  difficult  to  build  up  a  clientele  of  steady  loval 

eustomers  of  the  house.     This  can  be  accomplished  onfy 

The  local  retail  store  has  the  advantage  in  this  matter. 
4.  it  ,s  often  maintained  that  the  development  of  the 

S"cosro^;""-^  '"  ""^  "^"""'^y  '"'^  been'iinde.:d  by 
3lTo  b.V'T"'""'^'"'""  "'  •""••'^''K''  that  are  to^ 
uT  L  .  1  """"""'""y  l-y  freight.  This  opens 
"P  the  whole  question  of  the  parcels  post  and  of  the 


RETAIL  SELLING 


S3 


regulation  of  express  rates.  Many  retail  and  jobbing 
interests  maintain  that  a  lower  cost  of  transporting 
small  packages  will  work  solely  to  the  advantage  of  the 
mail-order  concerns  and  will  increase  the  competitive 
difficulties  of  the  local  retail  stores.  Other  business  in- 
terests urge  that  the  local  establishments  will  be  as 
greatly  benefited  as  the  great  central  mail-order 
houses,  because  it  will  then  be  possible  for  the  re- 
tail stores  to  increase  their  own  field  of  operations 
by  developing  iiiail-order  departments  of  their  own. 
Whether  or  not  cheaper  and  easier  means  of  parcel 
transportation  will  be  of  greater  advantage  to  the 
present  mail-order  houses  than  it  will  be  to  the  pres- 
ent retail  stores,  the  fact  remains  that  it  will  probably 
result  in  a  more  general  application  of  the  mail-order 
principle. 

21.  Combinations  of  retail  selling  methods. — ^We 
have  seen  that  there  are  three  standard  ways  of  selling 
goods  at  retail:  by  salesmen  to  call  upon  consumers,  by 
the  retail  store,  and  by  the  mail-order  method.  The  ad- 
vantages and  disadvantages  of  each  method  have  been 
briefly  discussed.  Every  dealer  who  wishes  to  sell  at 
retail  must  make  a  definite  selection  of  one  or  more  of 
these  methods  of  distribution.  His  choice  is  by  no 
means  lunited  to  one.  As  a  matter  of  fact,  the  most 
successful  retail  establishments  are  Inose  that  utilize 
more  than  one  means  of  reaching  the  consumer.  Some 
retail  dealers  maintain  store  rooms  and  also  send  out 
solicitors  to  call  upon  consumers  and  to  induce  them  to 
visit  the  store.     Pianos  are  frequently  sold  in  this  way. 

A  particularly  effective  combination  of  retail  selling 
methods  is  that  of  the  retail  store  with  the  mail-order 
business.  Marshall  Field  &  Company,  of  Chicago,  and 
John  Wanamaker,  of  New  York,  dre  two  well-known 


^ 


84 


SELLING  AND  BUYING 


Si'"—"  tr? -' r  * '  " 

,  .°"le     o  '     '  «^°"'"'  '"  "«=  "<"■"  the  counter" 

tomers  possessed  by  any  suc^stf;! f,  :^1;t  ^f 

uable  advert  s  no-  as«!Pt  f«,.  +i,  -i       \  *  ^*^" 

txiisaig  asset  tor  the  mail-order  narf  r^f  ^v^ 

bus.ness.    One  department  helps  the  sales  oft^e  otht 


CHAPTER  III 


SELLING  AT  WHOLESALE 

22.  Selling  problem  of  jobber. — We  have  seen  that 
the  retailer  is  concerned  with  only  one  of  the  two  phases 
of  the  selling  problem.  He  does  not  have  to  select  his 
market.  Because  he  is  a  retailer,  he  must  sell  to  con- 
sumers. His  sole  concern  is  with  the  methods  by  which 
he  can  reach  his  market.  The  same  is  true  of  the  job- 
ber. As  a  jobber,  his  activities  are  confined  to  selling 
to  those  who  purchase  in  order  to  sell  again.  If  he  does 
sell  to  the  consumer — in  other  words,  if  he  does  both  a 
wholesale  and  a  retail  business — his  problem  as  a  re- 
tailer is  exactly  that  of  the  man  who  sells  only  at  retail. 

The  dealer  who  sells  both  to  dealers  and  to  consumers 
is  usually  called  a  semi-jobber.  There  are  many  suc- 
cessful houses  that  conduct  a  dual  business  of  this  char- 
acter; but  ordinarily  it  is  inexpedient  for  a  distributer 
to  attempt  to  sell  the  same  line  to  dealers  and  to  con- 
sumers in  the  same  locality.  When  such  an  attempt  is 
made,  it  is  obvious  that  the  semi- jobber  must  be  pre- 
pared to  meet  the  particularly  active  competition  and 
antagonism  of  the  exclusively  retail  dealers  in  the  dis- 
trict in  which  he  operates  as  a  retailer.  The  strictly  re- 
tail stores  always  strenuously  resent  the  invasion  of 
their  field  by  one  who  is  doing  also  a  jobbing  business. 
If  there  is  one  wholesale  grocery  in  a  city,  for  example, 
the  retail  grocers  of  that  city  normally  give  it  their  sup- 
port, because  of  the  convenience  of  being  able  to  replen- 
ish their  stocks  at  short  notice.    If  the  wholesale  house 

25 


86 


SELLING  AND  BUYING 


begins  to  sell  at  retail,  however,  either  surreptitiously 
or  openly—in  other  words,  if  it  strives  to  compete  with 
Its  own  customers— it  will  have  difficulty  in  retaining 
the  patronage  of  the  retail  grocers  of  the  city. 

There  are  some  branches  of  merchandising  in  which 
trade  lines  are  not  very  sharply  drawn,  and  semi-job- 
bers in  these  goods  frequently  flourish  and  are  able  to 
build  up  a  profitable  retail  and  wholesale  trade  in  the 
same  district.  In  such  staple  lines  as  groceries,  dry- 
goods,  drugs,  and  hardware,  however,  when  semi-job- 
bers have  acliieved  great  success,  it  has  been  mainly  in 
those  cases  in  which  the  wholesale  trade  of  the  dealer  is 
with  merchants  located  outside  of  the  city  where  he  con- 
ducts his  retail  business. 

23.  Two  methods  of  wholesale  selling.— The  typical 
method  of  cal-rj'ing  on  the  strictly  wholesale  activities 
of  the  jobber  is  by  means  of  salesmen  who  call  upon  the 
retail  trade.     The  use  of  traveling  representatives  of  a 
wholesale  house  is  probably  as  old  an  institution  as  the 
wholesale  house  itself.    There  are  some  branches  of  the 
jobbing    trade,  however,  in  which  traveling  salesmen 
have  not  always  been  an  important  factor.     Even  to- 
day it  is  the  custom  for  buyers  of  some  lines  of  goods  to 
make  periodical  visits  to  the  central  markets  and  to  or- 
der only  after  personal  inspection  of  the  jobbers'  stocks. 
Formerly  this  custom  was  much  more  general  than  it 
is  at  the  present  time.     Now  it  is  confined  chiefly  to 
hnes  m  which  the  idea  of  style  plays  an  important  part, 
iiuyers  of  clothing,  millinery,  and  similar  goods  usually 
make    frequent    trips    to    style    centers— New    York, 
Chicago,  and  the  European  capitals,  for  example— in 
order  to  be  sure  that  their  purchases  will  be  according 
to  the  prevailing  mode.    Jobbers  in  these  lines  in  the 
trade  centers,  therefore,  are  chiefly  concerned  with  the 


SELLING  AT  WHOLESALE 


«7 


problem  of  encouraging  the  visits  of  customers  to  their 
establishments.  They  must  maintain  an  adequate 
house  selling  force.  Even  in  these  cases,  the  employ- 
ment of  a  certain  number  of  traveling  salesmen  is 
usually  essential.  The  duty  of  the  traveling  repre- 
sentatives is  to  solicit  the  trade  of  those  dealers  who  do 
not  come  to  the  city  to  buy,  as  well  as  to  encolirage  the 
visits  of  those  who  do. 

Most  wholesale  selling  is  done  by  local  or  traveling 
salesmen.  The  competition  in  jobbing  channels  is  ex- 
tremely severe,  and  it  is  generally  considered  that  the 
house  that  does  not  go  out  after  the  business  with  com- 
petent representatives  can  not  compete  with  the  house 
that  does.  In  opposition  to  this  general  contention, 
however,  there  are  some  examples  of  marked  success  in 
wholesaling,  which  has  been  achieved  simply  by  advertis- 
ing in  periodicals  and  by  the  judicious  use  of  catalogues 
and  circulars.  Accordingly,  two  possible  methods  of  dis- 
tributing goods  at  wholesale  must  be  considered — by 
salesmen  and  by  mail.  Some  of  the  exclusive  advan- 
tages of  each  of  these  two  methods  of  wholesale  selling 
are  listed  below. 

24.  Wholesale  selling  by  salesmen. — 1.  The  jobber 
can  develop  a  personal,  friendly  relation  with  the  trade 
through  his  representatives.  The  effect  of  this  is  simi- 
lar to  the  effect  of  the  personal  relation  that  the  retail 
dealer  often  sustains  to  his  customers.  A  purchaser, 
whether  he  is  a  consumer  or  a  retail  dealer,  usually 
places  his  order  where  he  can  get  the  best  service  and  the 
most  satisfactory  goods  at  the  lowest  price;  but  when 
two  or  more  houses  offer  him  approximately  the  same 
terms,  the  same  price  and  quality,  and  the  same  serv- 
ice, his  personal  relations  with  the  sellers  or  with  the 
representatives  of  the  sellers  is  frequently  the  determin- 


f8 


SELLING  AND  BUYING 


ing  factor  in  the  plaein^  of  his  order.  Personality  is 
tc.-(lay  ahnost  if  not  <,uite  as  strong  a  factor  in  sales- 
iiiiiiislii|i  as  It  ever  was. 

2.  Thf  saksina,,  can  Rive  his  employer  information 
re«anlm„  the  credit  of  his  customers  which  may  be  of 
hnancml  benefit  to  the  house.  He  can  also  be  of  ma- 
tenal  assistance  in  the  matter  of  collections.  When  a 
customer  through  willfulness  or  carelessnew  is  slow  in 
meeting  his  obligations,  it  is  sometimes  difficult  to  effect 
a   settien,ent    by   corres|K.„dence   without   losing   the 

otTh,  "  °V^. '"=""""""  »'""""«'•  ™f  can 
often  be  accomplished  more  easily  by  the  persoiml  visit 
ol  a  tactful  representative. 

8.  A  salesman  can  usually  secure  a  larger  order  from 
a  retailer  than  the  dealer  would  ordinarHy  send  in  by 
mad  If  he  were  ordering  only  from  a  catalogue.     We 
have  seen  that  the  reverse  of  this  is  true  in  the  case  of 
the  sale  of  goods  at  retail.    The  retail  clerk  is  not  trained 
to  draw  the  customer's  attention  to  everything  of  pos- 
sible interest  in  the  stock  of  the  store,  and  the  customer 
™"ld  no   give  him  the  time  to  do  so  even  if  the  clerk 
had  the  traming  and  ability.     The  efficient  jobbers' 
sa  esman  however,  does  not  leave  a  dealer  until  he  has 
canvassed  the  entire  stock,  so  far  as  his  line  is  concerned 
He  IS  not  satisfied  with  an  order  until  he  is  sure  that 
It  ^ntains  all  the  iten.s  that  the  dealer  can  wisely  pur! 

4.  The  salesman  is  frequently  better  acquainted  with 
general  merchandising  conditions  than  are  ?he  deaferTto 
whon,  he  sells  For  that  reason  he  is  often  in  a  pLt 
t.o„  to  assist  his  trade  by  giving  valuable  suggestrm 
regarding  the  stock  to  be  purchased  and  theTetC 
o  make  ,t  move.  Particularly  in  the  smaller  towns  o 
the  country  the  dealers  are  accustomed  to  rely  grelt^y 


SELLING  AT  WHOLKSALE 


t9 


upon  the  traveling  salesmen  for  information  about 
styles  and  fashions  and  novelties.  If  a  salesman  has 
demonstrated  his  trustworthiness  in  this  -espect,  many 
of  his  customers  rely  upon  his  judgment  to  a  remark- 
able degree.  It  is  true  that  a  mail-order  jobber  can 
develop  this  same  confidence,  and  he  can  be  of  similar 
service  to  his  customers,  but  he  can  not  do  so  as  quickly 
or  as  effectively  as  the  jobber  that  sells  through  sales- 
men. 

5.  Most  wholesale  selling  is  done  by  means  of  samples 
that  are  carried  by  the  salesmen.  The  mail-order  job- 
ber must  make  sales  by  the  attractiveness  of  the  pictured 
and  printed  descriptions  of  his  goods. 

6.  Few  jobbers  do  extensive  advertising.  At  the 
present  time  it  is  not  generally  considered  necessary  if 
the  territory  is  well  covered  by  traveling  salesmen. 

25.  Wholesale  selling  by  mail— I.  A  large  sales  or- 
ganization is  not  required. 

2.  A  jobber's  salesman  frequently  acquires  so  strong 
a  personal  influence  with  his  customers  that  he  can  carry 
the  trade  of  some  of  them  to  any  house  with  which  he 
may  become  connected.  In  this  way,  a  jobber  who 
sells  through  salesmen  runs  the  risk  of  losing  some  of 
his  customers  whenever  a  salesman  for  any  reason 
leaves  his  employ.  The  mail-order  jobber  avoids  this 
risk. 

3.  The  supervision  that  a  jobber  can  exercise  over  his 
salesmen  is  necessarily  limited.  Their  statements  and 
selling  methods  may  be  such  at  times  a^  to  reflect  dis- 
credit upon  the  employer.  The  catalogue  and  corre- 
spondence of  the  mail-order  jobber  are  his  only  repre- 
sentatives. He  risks  the  reputation  of  his  house  only 
to  those  who  are  under  his  direct  supervision. 

4.  Unless   the   mail-order   jobber's   advertising   ex- 


30 


W 


SELLING  AND  BUYING 


pense  .s  eqna]  to  the  cost  of  maintaining  a  force  of  sales- 
men,  he  sho.,1,1  be  able  to  make  lowef  priceTthln  the 
jobber  who  sells  through  salesmen.     It  i^  as  dan' rou, 
to  generahze  on  this  point  as  it  is  to  make  generate 
ments  about  the  relative  selling  expenses  of  a  W  ^ 
tail   store   and  a  retail   mailorder  distributer     Th» 
art.  es  sold,  the  location  of  the  dealer, tldrtls  in^h: 

very  tew  that  employ  salesmen  that  do  not  also  k..,P 

In  "SJanr'  rr^^^^  *'^^'  ^"^*--  ^^^^^^^^ 

mail     Many  jobbers   are   beginning  to   advertise   in 

m^hod  of  .^ntJwIrUr  c:t:er;rs  Std 
some  who  esale  dealers  to  publish  "house  organs^wTeh 

mucn  matter  of  general  interest  that  they  mav  be 
cUssed  as  valuable  additions  to  periodical  bLi^ess  lit 
erature     Competition  is  keen  in  the  jobbing  field  and 
with  a  few  exceptions,  the  greatest  successes  won  bt 

ders.     This  combmahon  of  the  two  methods  of  whole- 
sale sellmg  ,s  particularly  advantageous  in  the  clr of 

large  territory  and  widely  scattered  customers. 


CHAPTER  IV 


PROBLEMS  OF  MANUFACTURER 

27.  Manufacturers'  selling  methods. — ^We  have  seen 
that  the  retailer  and  the  jobber  are  concerned  with  only 
one  of  the  two  general  phases  of  the  problem  of  distri- 
bution. They  are  not  called  upon  to  select  the  class  of 
customers  to  whom  they  are  to  sell  their  goods,  because 
the  meaning  of  the  terms,  retailer  and  jobber,  deter- 
mines for  them  the  general  nature  of  their  activities. 
The  retailer  sells  to  consumers  and  the  jobber  sells  to 
dealers.  These  two  classes  of  distributers  have  to  con- 
sider only  the  best  methods  of  reaching  their  natural 
market.  The  manufacturer,  on  the  other  hand,  has  a 
more  complex  selling  problem  to  solve.  He  must  first 
decide  to  what  class  or  classes  he  is  to  sell  his  product, 
and  he  must  then  select  the  best  means  of  reaching  the 
market  that  he  has  chosen. 

28.  First  problem  of  the  manufacturer. — Generally 
speaking,  the  manufacturer's  first  selling  problem  is  to 
determine  whether  he  will  sell  his  product  to  the  job- 
ber, to  the  retailer,  or  to  the  consumer.  Shall  he  con- 
fine his  direct  sales  to  one  of  these  classes  exclusively, 
or  will  it  be  advantageous  to  place  his  goods  directly 
with  two  or  all  of  them?  The  problem  is  an  impor- 
tant one,  because  on  its  solution  depends,  first,  the  selec- 
tion of  economical  methods  of  marketing  the  product, 
and,  second,  the  attitude  of  the  wholesale  and  retail  trade 
toward  the  manufacturer,  and  the  degree  to  which  their 
cooperation  can  be  secured  in  the  distribution  of  his 

81 


32 


SELLING  AND  BUYING 


goods.    As  a  matter  of  fact,  however,  the  small  manu- 
facturer frequently  does  not  feel  the  necessity  of  sol .  in;r 
th,s  prob  em.     He  may,  for  example,  devote  his  chief 
energies  to  securing  orders  from  the  retail  trade,  and 
yet  he  may  willingly  accept  orders  from  jobbers  and 
consumers  as  well.     This  may  be  due  to  a  definite  and 
knovvnpohcy  of  dealing  directly  with  any  one  who 
wants  h,s  goods,  but  it  is  more  often  due  to  the  lack  of 
a  definite  pohcy  in  this  regard.     The  small  manufac- 
turer s  goods  may  be  relatively  of  little  importance  in 
the  general  market.     When  this  is  the  case,  retailers  and 
jobbers  may  not  be  sufficiently  interested  in  them  to  de- 
velop either  a  friendly  or  an  antagonistic  feeling  to- 
ward them  on  account  of  the  selling  methods  of  the 
manufacturer.     The  problem  of  making  a  definite  se- 
lection of  a  market,  however,  is  a  vital  one  with  the  pro- 
ducer who  IS  selling  a  well-knov  n  article  over  a  wide 
territory.     Every  manufacturer  who  hopes  to  develop  a 
sectional  or  a  national  distribution,  no  matter  how  smaU 
his  present  business  may  be,  should  realize  that  an  early 
and  satisfactory  solution  of  this  problem  will  be  a  val- 
uable asset,  when  his  product  becomes  standard  and  of 
sufficient  importance  in  the  trade  to  merit  the  definite 
support  or  antagonism  of  distributers. 

29.  Factors  in  solution  of  first  problem.— There  are 
several  considerations  that  may  influence  a  manufac- 
turer  m  the  selection  of  the  immediate  market  for  his 
goods.     Chief  among  them  are  the  two  following- 

1.  The  nature  of  the  product  itself.  For  instance, 
Its  torm,  size,  bulk,  price,  or  use. 

2.  Trade  conditions  and  considerations  of  policy  or 
expediency  that  are  not  based  on  the  physical  character- 
istics of  the  product. 

The  application  of  these  two  classes  of  considerations 


PROBLEMS  OF  MANUFACTURER 


88 


is  best  indicated  by  concrete  illustrations.  The  two  ex- 
amples that  follow  illustrate  the  effect  of  the  nature  of 
the  product  on  the  selling  methods  of  the  producer. 

30.  Nature  of  the  product.-^The  dressed-meat  in- 
dustry requires  modern  refrigerating  facilities  at  local 
distributing  points.  When  the  central  packing-houses 
began  to  extend  their  territories,  these  local  refriger- 
ating facilities  were  not  to  be  found.  Accordingly  the 
packers  established  their  own  warehouses  and  offices  at 
convenient  shipping  points  throughout  the  country. 
From  these  branch-houses,  sales  and  deliveries  are  made 
directly  to  the  retailer. 

An  adding  machine  is  so  complicated  a  piece  of 
mechanism  and  its  many  uses  are  as  yet  so  little  known 
to  the  general  public,  that  it  would  be  inadvisable  for 
the  manufacturers  to  depend  for  its  distribution  on  job- 
bers and  retailers  of  office  supplies.  These  dealers 
could  not  give  it  the  special  attention  necessary  to  en- 
able them  to  learn  and  present  its  many  selling  points. 
The  mauMfacturers  must  endeavor  to  educate  the  public 
directly  about  the  use  and  value  of  the  machine.  Ac- 
cordingly, the  producers  usually  sell  directly  to  the  con- 
sumer either  through  branch  houses  and  their  own  sales- 
men, or  through  agents  who  are  closely  connected  with 
the  manufacturing  companies. 

These  two  examples  illustrate  the  effect  of  the 
nature  of  the  product  on  the  manufacturer's  selection 
of  the  class  to  which  he  is  to  sell  his  products.  The  con- 
sideration of  business  policy  or  expediency  in  the  solu- 
tion of  the  problem  is  illustrated  by  the  following  cases. 
31.  Business  policy  or  expediency.— The  jobber  is 
an  important  factor  in  the  grocery  trade;  probably  90 
per  cent  of  the  groceries  consumed  in  this  country  are 
distributed   through   the    wholesale    grocer.     His    in- 


SELLING  AND  BUYING 

fluence,  therefore,  is  great,  and  his  cooperation  valuable. 
The  largest  laundry  soap  factory  in  the  United  States 
has  for  many  years  refused  to  sell  its  products  directly 
to  any  one  not  conducting  a  strictly  wholesale  business. 
It  is  true  that  the  manufacturer's  salesmen  solicit  or- 
ders from  retailers,  but  these  orders  are  always  taken  for 
the  account  of  some  jobber;  and  even  when  the  ship- 
ment is  large  enough  to  be  made  directly  from  the  fac- 
tory to  the  retailer,  the  wholesale  grocer  named  by  the  re- 
tailer secures  his  full  jobbing  profit  on  the  transaction. 
This  system  of  selling  is  typical  of  the  attitude  of  many 
manufacturers  who  seek  the  active  cooperation  of  the 
jobbers  by  recognizing  them  as  legitimate  factors  in  dis- 
tribution.    In  return  for  their  loyalty  to  the  wholesale 
dealer,  the  manufacturers  ask  that  the  jobber  push  their 
goods  instead  of  those  of  other  producers  who  may  sell 
directly  to  retailers  or  even  to  consumers. 

The  iron  and  steel  companies  have  largely  ceased  sell- 
ing to  middlemen,  because  the  dealers  began  quoting 
prices  for  future  delivery  that  were  lower  than  the  pro- 
ducer themselves  could  quote.  This  caused  attempts 
at  speculative  manipulation  of  prices,  which  were  de- 
moralizing, and  forced  the  manufacturers  to  keep  con- 
trol of  prices  by  selling  directly  to  consumers. 

It  has  already  been  suggested  that  some  manufac- 
turers do  not  find  it  necessary  to  confine  their  direct 
sales  to  the  jobber,  the  retailer,  or  the  consumer.  The 
small  manufacturing  organization  that  has  to  secure  an 
immediate  distribution,  without  much  regard  for  the  ef- 
fect of  its  selling  policy  on  its  later  development,  is  fre- 
quently willing  to  sell  its  goods  directly  to  both  classes 
of  distributers  and  to  consumers  as  well.  It  may  sell 
to  consumers  at  a  maximum  price.  From  this  figure  it 
may  allow  one  discount  to  the  retailer  and  a  still  larger 


PROBLEMS  OF  MANUFACTURER  85 

discount  to  the  jobber.     It  has  been  explained  in  a  pre- 
ceding paragraph  that,  for  a  comparatively  small  fac- 
tory, and  even  for  a  larger  one  in  some  lines  of  business, 
this  policy  is  entirely  proper  and  is  the  only  one  that  can 
be  pursued  to  advantage.     The  large  organizations  that 
have  adopted  this  method  of  distribution,  however,  are 
chiefly  those  engaged  in  industries  in  which  trade  lines 
have  never  been  strictly  drawn.     The  publishing  busi- 
ness is  a  case  in  point.     Some  publishers  sell  to  whole- 
sale book  dealers;  they  also  sell  directly  to  retail  stores 
through  their  own  salesmen;  and  they  sell  directly  to 
consumers  by  means  of  house-to-house  solicitors.     In 
his  turn,  the  jobber  to  whom  the  publisher  sells,  may 
also  sell  directly  both  to  the  retail  trade  and  to  con- 
sumers as  well.     This  situation  is  by  no  means  uni- 
versal in  the  book  business,  but  it  is  typical  of  the  con- 
dition that  might  exist  in  all  lines  if  manufacturers  in 
general  did  not  recognize  the  customary  trade  channels. 
In  some  lines,  it  is  highly  desirable  for  the  manufac- 
turer to  select  one  of  the  three  possible  classes  of  cus- 
tomers that  we  have  been  considering,  and  to  confine  his 
direct  sales  strictly  to  that  class.    The  branches  of  busi- 
ness in  which  this  policy  is  most  advisable  are  those  in 
which  the  jobber  plays  an  important  part,  such,  for 
example,  as  the  great  staple  lines  of  groceries,  dry  goods, 
hardware,  and  drugs.     Some  of  the  advantages  and  dis- 
advantages of  the  various  means  of  distribution  open  to 
manufacturers  in  these  and  similar  fields  are  as  follows: 
32.  Advantages  of  making  direct  sales  only  to  job- 
hers.—l.  The  manufacturer  recognizes  the  jobber  as  a 
legitimate  factor  in  distribution,  and  refuses  to  compete 
with  him  by  seUing  to  retailers  or  consumers.     Accord- 
ingly, the  manufacturer  can  expect  the  active  support 
of  the  jobber's  skiing  organization  in  the  distribution 


si 


SELLING  AND  BUYING 

of  his  product.     It  is  to  the  jobber's  advantage  t. 
push  the  goods  of  the  manufacturer  who  adopts  thi, 

2  Because  the  manufacturer  can  expect  the  jobbe] 
to  sell  h,s  goods  for  him.  and  to  take  an  active  interest  ir 
them,  the  manufacturer  does  not  need  to  maintain  t 
large  selhng  organization. 

3.  The  manufacturer's  accounting  and  order  systems 
are  much  simplified.  If,  for  instance,  he  is  doing  a  na- 
tional  business  in  a  grocery  specialty,  he  has  accounts 
merely  with  the  2,.500  or  3,000  wholesale  grocers,  in- 
stead of  with  the  quarter  of  a  million  retail  grocers  in 
the  United  States. 

33.  Disadvantages  of  making  direct  sales  only  to  job- 
^ers.—l    The  manufacturer  can  not  foUow  the  distri- 
bution of  his  goods  beyond  the  jobber's  stock.     Many 
jobbers  operate  over  an  extensive  territory.     Therefore 
the  manufacturer  can  not  learn  definitely  where  his 
goods  go  finally  into  consumption.     If  he  advertises  in 
order  to  mterest  the  consumer  and  retailer,  he  can  not 
determine  definitely  the  effect  of  the  advertising  in  any 
particular  locality.     He  does  not  know  accurately  the 
extent  to  which  demand  is  increasing  or  decreasing  in 
any  given  section,  and  his  efforts  to  stimulate  business 
by  local  advertising,  therefore,  can  not  be  accurately  di- 
rected. '^ 

2  There  are  many  manufacturers  that  support  the 
jobber  by  selling  directly  only  to  him.  He  is  supposed 
to  give  equal  support  to  all  of  them  in  return.  He  may 
push  one  manufacturer's  products  for  a  period,  and 
then  discard  them  for  a  different  line.  This  prospect 
need  not  be  feared  if  the  quality  of  the  goods  has  been 
sufficiently  impressed  upon  the  public  to  have  built  up 
a  steady  demand  for  them;  but  the  possibility  is  one  that 


PROBLEMS  OF  MANUFACTURER  87 

must  certainly  be  considered  by  the  manufacturer  whose 
products  are  little  known. 

3.  JMany  jobbers'  salesmen  are  paid  on  a  commission 
basis.  Their  compensation  is  based  on  the  amount  of 
profit  that  can  be  figured  on  the  goods  they  sell.  Ac- 
cordingly they  will  sell  mainly  the  goods  that  pay  the 
largest  profit,  no  matter  how  willing  the  jobber  may  be 
to  return  the  support  of  the  loyal  manufacturers.  If 
their  goods  do  not  pay  as  good  a  profit  as  other  lines,  he 
can  not  force  his  salesmen  to  sacrifice  their  own  imme- 
diate financial  interests. 

34.  Advantages  of  making  direct  sales  only  to  retail- 
ers.—I.  Goods  sold  to  a  retailer  can  generally  be  con- 
sidered as  being  consumed  in  or  near  the  retailer's  town. 
Hence  the  manufacturer  can  determine  accurately  the 
growth  or  loss  in  business  at  any  point,  and  he  can  di- 
rect his  advertising  accordingly.  The  manufacturer 
who  sells  to  the  retailer  is  in  a  better  position  to  judge 
and  to  influence  demand  than  is  the  manufacturer  who 
sells  only  to  the  jobber. 

2.  The  retailer  who  is  a  real  merchant  can  often  sell 
whatever  he  wants  to  sell,  without  too  much  regard  for 
popular  demand.  This  statement  is  subject  to  fre- 
quent exceptions,  but  it  applies  in  many  cases.  If  a 
manufacturer  sells  to  retailers,  his  salesmen  must  call 
upon  the  dealers  frequently.  A  manufacturer's  sales- 
men are  trained  to  secure  the  dealer's  cooperation;  their 
one  purpose  is  to  enlist  his  support  for  the  particular 
line  they  are  handling.  The  jobber's  salesmen,  on  the 
other  hand,  are  often  asked  to  give  their  attention  to  so 
many  hnes  that  it  is  impossible  for  them  adequately  to 
press  the  advantages  of  any  particular  one. 

3.  An  increasing  number  of  large  retailers  refuse  to 
purchase  through  a  jobber.     Their  support  is  usuaUy 


38 


SELLING  AND  BUYING 


valuable,  and  it  can  be  gained  only  by  direct  selling 
3o.  Disadvantages  of  making  direct  sales  only  to  re 
tatlers—l.  If  the  jobbers  can  not  have  the  exclusive 
sale  of  an  article,  they  naturally  work  against  it  and  dis 
courage  Its  purchase  by  retailers.  In  many  instance, 
the  jobber  exercises  a  strong  influence  over  tlie  retailer 
and  in  such  cases  the  jobber's  support,  even  though  i1 
may  be  passive,  is  to  be  preferred  to  his  active  antag- 
onism.  * 

2.  Selling  directly  to  retailers  necessitates  the  main- 
tenance of  an  extensive  selling  organization.  The  trade 
must  be  covered  frequently  enough  to  neutralize,  as  far 
as  possible  the  effect  of  the  jobbers'  salesmen's  activity 
m  behalf  of  other  lines. 

8.  The  accounts  carried  are  many.  If  credit  is 
granted,  the  system  must  be  extensive,  and  the  accounts 
must  have  close  watching.  The  financial  condition  of 
many  retailers  is  not  strong,  and  bad  debts  are  likely  to 
be  more  frequent  than  when  direct  sales  are  confined  to 
wholesale  houses. 

36.  Advantages  of  making  direct  sales  only  to  con- 
surners.-!.  The  manufacturer  can  determine  accu- 
rately  the  response  to  his  advertising  in  any  given 
district.  He  has  an  absolute  check  on  variations  in  de- 
mand and  can  apply  the  needed  stimulus  to  the  business 
exactly  where  it  may  be  needed. 

2.  The  manufacturer  can  retain  control  of  the 
market.  In  other  words,  he  can  make  prices  and  estab- 
b  h  a  good  will"  without  danger  of  the  prices  being 
cut  by  dealers,  and  the  "good  >.^11"  being  impaired  by 
^e^unauthorized  action  of  some  irresponsible  middle- 

37.  Disadvantages  of  making  direct  sales  only  to  con- 
sumers.~i.  As  soon  as  a  "direct  to  consmner"  business 


PROBLEMS  OF  MANUFACTURER 


89 


becomes  large  enough  to  be  a  strong  competitor  of 
wholesale  and  retail  dealers,  it  is  made  the  object  of  con- 
certed attack  by  the  interests  with  which  it  competes. 
Sometimes  the  influence  of  the  dealers  is  strong  enough 
to  result  in  legislative  action  adverse  to  the  manufac- 
turer. 

2.  If  the  consumers  are  reached  by  salesmen,  the  cost 
of  the  necessary  selling  organization  must  be  very  great. 
The  same  thing  is  true  of  the  advertising  expense  if  the 
business  is  of  the  mail-order  variety. 

8.  A  "direct  to  consumer"  business  conducted  on  a 
credit  basis  involves  a  complicated  system  of  accounts, 
and  the  risk  of  loss  through  bad  debts  is  in  proportion 
to  the  number  of  accounts  carried.  If  it  is  conducted 
on  a  cash  basis,  it  loses  the  trade  of  the  large  number  of 
people  whose  patronage  the  local  dealer  holds  by  grant- 
ing them  credit. 

38.  Second  selling  problem  of  manufacturer. — ^We 
have  suggested  some  of  the  advantages  and  disadvan- 
tages of  the  possible  solutions  of  the  first  phase  of  the 
manufacturer's  selling  problem.  After  he  has  deter- 
mined whether  he  is  to  sell  to  the  jobber,  the  retailer,  or 
the  consumer,  or  to  any  two  or  to  all  of  them,  he  must 
choose  methods  of  reaching  the  market  that  he  has  se- 
lected. If  he  is  to  sell  to  jobbers,  he  may  do  so  either 
through  salesmen  or  by  mail.  The  mail-order  method 
of  selling  to  jobbers,  however,  is  so  little  used  that  its 
advantages  as  compared  with  those  of  the  method  of 
selling  through  salesmen  need  not  be  considered  in  de- 
tail. Ordinarily  the  manufacturer  who  seeks  to  enlist 
the  co-operation  of  the  jobber  must  do  so  by  personal 
solicitation.  If  a  manufacturer  sells  to  the  retailer,  the 
selling  methods  that  are  open  to  him  are  exactly  the 
same  as  those  that  are  open  to  the  jobber;  and  if  he  sells 


40 


SELLING  AND  BUYING 


to  the  consumer,  he  can  make  his  choice  of  the  sam. 
methods  of  distribution  that  are  open  to  any  one  wh( 
seeks  to  sell  ginnls  at  retail.  The  advantages  and  dis 
advantages  of  the  various  possible  methods  of  wholesale 
and  retail  distribution  have  already  been  considered. 

89.  Declining    importance   of    middleman.— lieceni 
years  have  witnessed  many  changes  in  manufacturers' 
selhng  methods.     The  number  of  manufacturers  who 
are  leaving  the  middleman  entirely  out  of  their  schemes 
ot  distribution  is  constantly  increasing.    The  wonderful 
development  of  modern  advertising  has  made  it  possi- 
ble for  the  manufacturer  to  talk  directly  to  the  people 
who  use  his  goods,  and  Mghly  successful  "factory-to- 
consumer"  enterprises  are  to  be  found  in  nearly  every 
line  of  industry.    As  marked  as  this  movement  is,  how- 
ever,  it  is  not  more  important  than  the  increasing  tend- 
ency on  the  part  of  manufacturers  to  recognize  the  re- 
tailer as  a  legitimate  distributer,  but  to  eliminate  one  of 
the  other  traditional  factors  in  distribution  from  their 
system  of  selling.     In  order  to  strengthen  their  own 
position  and  to  meet,  in  some  degree,  the  general  com- 
plaint against  high  prices  that  are  freque  My  attributed 
to  the  handling  of  the  necessaries  of  life  by  superfluous 
middlemen,  many  manufacturers  have  abandoned  the 
policy  of  relying  exclusively  upon  the  wholesale  mer- 
chant for  the  distribution  of  their  products.    They  are 
seeking  more  and  more  to  find  a  direct  market  among 
the  retail  trade.     The  declining  importance  of  the  job- 
ber may  be  traced,  in  part,  to  the  following  causes: 

1.  The  growth  of  publicity  and  the  complexity  of  ad- 
vertising campaigns  have  made  it  necessary  for  the 
manufacturer  to  have  an  accurate  check  on  the  effent 
ot  h.s  advertising,  and  to  be  sure  that  the  work  is  fol- 
lowed  up  by  the  necessary  selling  activities.     Neither 


PROBLEMS  OF  MANUFACTURER 


41 


of  these  things  is  possible  when  the  manufacturer  sells 
only  to  the  jobber.  The  manufacturer  who  employs 
sale-»r*:n  to  solicit  retailers'  orders  to  be  filled  for  the 
account  of  jobbers,  is,  of  course,  able  to  follow  up  local 
advertising  effectively.  Even  he,  however,  is  at  a  great 
disadvantage  in  checking  up  the  actual  effectiveness 
of  his  publicity. 

2.  The  larger  scale  on  which  business  is  being  done — 
the  increased  investment  of  capital — has  inclined  the 
manufacturer  to  seek  the  closest  possible  connection  with 
the  consumer.  Unless  a  product  is  in  general  demand, 
there  are  uncertainties  involved  in  marketing  it  entirely 
through  jobbing  channels.  Manufacturers  are  fre- 
(luently  unwilling  to  risk  these  uncertainties  despite  the 
many  advantages  that  are  offered  by  distribution 
through  the  wholesale  trade. 

3.  The  increasing  purchasing  power  of  retailers  is  an 
important  factor  in  the  changing  status  of  the  jobber. 
Many  manufacturers  have  no  interest  in  the  maintenance 
of  trade  lines.  If  they  sell  only  to  jobbers,  it  is  simply 
because  they  do  not  care  to  deal  in  the  small  quantities 
that  the  retailer  often  wishes  to  buy.  If  the  retail  trade, 
however,  develops  sufficient  buying  power,  it  is  an  en- 
ticing market  for  the  manufacturer  who  is  willing  to 
sell  to  anj  one  who  can  handle  the  required  quantity  of 
his  product.  There  are  a  great  many  retailers  whose 
purchasing  power  is  much  larger  than  that  of  the  av- 
erage jobber.  Frequently  they  will  not  purchase  from 
a  jobber;  and  if  their  trade  is  to  be  secured,  they  must 
be  sold  directly. 

40.  Jobber's  place  in  merchandising  system. — De- 
spile  the  tendencies  that  are  responsible  for  the  lessen- 
ing importance  of  the  jobber,  it  is  improbable  that  he 
will  ever  be  eliminated  from  the  merchandising  system. 


I! 


48 


SELLING  AND  BUYING 


He  occupies  a  definite  and  important  place.     Withoui 
the  jobber  the  small  neighborhood  retail  store  could  not 
exist.     Consider,  for  example,  a  typical  grocery  store. 
Its  stock  n!ay  include  from  a  few  hundred  to  several 
thousand  different  articles,  which  are  probably  produced 
by  hundreds  of  manufacturers.     Except  in  the  quick- 
selling  staple  lines,  it  has  on  its  shelves  only  a  small  sup- 
ply of  each  article.     Let  us  imagine  that  there  is  no  job- 
ber from  whom  the  stock  can  be  purchased,  and  that  the 
retailer  has  to  buy  everything  from  the  manufacturers. 
In  the  first  place,  he  would  have  to  deal  with  as  many 
manufacturers  as  there  are  different  lines  in  his  stock. 
It  IS  easy  to  imagine  the  difficulty  the  average  dealer 
would  have  in  keeping  complete  assortments  in  stock 
under  these  conditions. 

In  the  second  place,  he  would  have  to  purchase  each 
article  in  much  larger  quantities  than  he  does  from  the 
jobber.  Few  manufacturers  would  care  to  sell  him  a 
half  case  of  extra  quality  canned  goods  or  a  dozen  bot- 
tles of  olive  oil.  The  increased  size  of  his  stock  would 
make  it  necessary  for  him  to  have  a  warehouse,  which 
means  additional  expense;  it  would  require  heavier  total 
purchases  than  the  average  dealer's  capital  would  per- 
mit; and,  even  if  his  capital  was  sufficient,  it  would 
mean  tying  up  a  considerable  portion  of  it  in  a  large 
amount  of  slowly  moving  merchandise. 

The  average  dealer  could  not  do  a  profitable  business 
under  these  conditions.  As  conditions  actuaUy  are, 
however,  the  retailer  can  make  almost  all  of  his  pur- 
chases from  one  jobber;  there  can  be  and  frequently  is 
a  cordial  understanding  amounting  to  more  than  a  mere 
buying  and  selling  relation  between  retailer  and  jobber 
which  IS  of  advantage  to  both  in  their  credit  relations; 
the  retailer  can  usuaUy  buy  as  much  or  as  little  as  he 


PROBLEMS  OP  MANUPACTURER  4§ 

pleases;  and  he  can  renew  any  portion  of  his  stock  on 
short  notice.  Furthermore,  the  jobber's  salesman  calls 
fre(|uently  on  his  customers;  he  can  help  the  retailer  to 
keep  a  varied,  well-selected  stock;  and  he  is  in  a  position 
to  assist  the  dealer  in  many  ways  by  his  knowledge  of 
conditions  in  the  trade  and  by  his  suggestions  regarding 
nimle-  i  merchandising  methods.  In  short,  the  jobber 
cariics  the  retailer's  surplus  stock  for  him,  and  enables 
him  to  do  a  profitable  business  on  small  capital.  As 
long  as  the  public  finds  the  neighborhood  retail  store  a 
necessary  convenience,  the  jobber  must  continue  to  be  a 
vital  factor  in  the  distribution  of  many  staple  goods. 
Even  the  development  of  the  chain-store  principle  will 
not  seriously  aflFect  his  importance.  Every  chain-store 
organization  must  have  a  central  supply  house,  and  this 
central  supply  house  is,  for  practical  purposes,  to  be 
considered  as  a  jobber,  because  it  serves  the  stores  in  its 
organization  in  precisely  the  same  way  as  the  ordinary 
jobber  serves  the  independent  stores  with  which  he  deals. 
41.  Agents,  commission  merchants,  and  brokers. — 
The  normal  chain  of  distribution  that  we  have  been  con- 
sidering is  sometimes  varied  by  the  introduction  of 
agents,  commission  merchants,  and  brokers.  These  oc- 
casional factors  in  the  marketing  of  merchandise,  how- 
ever, have  no  peculiar  selling  problems  to  solve.  They 
are  to  be  classed  as  wholesale  or  retail  dealers,  according 
to  whether  they  sell  directly  to  retailers  or  to  consumers; 
and  their  selling  problems  are  exactly  the  same  as  those 
of  other  jobbers  and  retailers.  In  some  instances  they 
stand  between  the  manufacturer  and  the  jobber,  and  in 
such  cases  their  selling  problems  are,  of  course,  the  same 
as  those  of  manufacturers  who  distribute  through  whole- 
sale dealers. 

In  the  textile  trade,  for  example,  and  particularly  in 


**  SELLING  AND  BUYING 

its  cotton  goods  branch,  the  customary  practice  is  for  a 
miU  to  dispose  of  its  entire  product  to  or :  ;  ,  ore  com- 
mission houses.  These  commission  houses  then  seU  the 
cloth  on  commission  usually  to  jobbers,  or  possibly  also 
to  retailers  or  to  consumers,  in  accordance  with  individ- 
ual sellmg  policies.  The  commission  house,  therefore, 
so  far  as  its  selling  problems  are  concerned,  is  in  the 
same  position  as  the  manufacturer,  and  it  can  be  consid- 
ered merely  as  the  manufacturer's  representative  in  the 
distribution  of  the  products  of  the  factory. 

When  one  who  has  something  to  sell,  whether  he  is  a 
manufacturer,  jobber,  or  retailer,  elects  to  distribute  his 
goods  through  agents,  brokers,  or  commission  mer- 
chants, instead  of  through  a  selling  organization  of  his 
own.  It  IS  usuaUy  because  he  would  be  at  a  disadvantage 
in  attempting  to  get  into  direct  touch  with  his  customers. 
This  disadvantage  might  be  occasioned  by  one  or  more 
of  the  following  causes: 

1.  Limited  capital.  Some  textile  manufacturers  sell 
their  product  through  commission  houses  because  their 
capital  is  not  sufficient  to  enable  them  to  carry  on  their 
business  otherwise.  The  commission  houses  advance 
them  a  portion  of  the  selling  price  of  the  cloth  before  it 
IS  actually  sold. 

2.  Limited  demand.  In  a  smaU  city  there  would  not 
be  a  sufficient  market  for  office  safes,  for  example,  to 
justify  a  manufacturer'?  representative  giving  his  entire 
time  to  the  local  trade.  A  merchant  engaged  chiefly  in 
some  other  line  of  business,  however,  could  profitably 
act  as  the  manufacturer's  agent  and  carry  a  smaU  stock 
of  safes  to  supply  the  local  demand. 

8.  Unfamiliarity  with  the  market.  The  instance  of 
the  average  individual  who  wishes  to  seU  real  estate  is  a 
case  in  point. 


PROBLEMS  OF  MANUFACTURER 


45 


4.  Peculiar  organization  of  the  market.  For  in- 
stance, stocks,  bonds,  and  produce  are  usually  purchased 
in  quantities  only  through  organizations  known  as  ex- 
changes or  boards  of  trade.  Trading  on  these  ex- 
changes or  boards  of  trade  is  confined  to  members,  who 
are  commonly  termed  brokers.  An  individual  having 
commodities  of  this  sort  to  sell  would  ordinarily  have  to 
do  so  through  the  agency  of  a  broker. 


CHAPTER  V 

SALES  DEPARTMENT  ORGANIZATION 

42.  Principles  of  organization.— The  sales  depart- 
ment organization  of  a  dealer  or  manufacturer  reflects 
his  selling  policy.     Its  characteristics  are  determined  by 
the  seUmg  methods  that  have  been  adopted.     A  manu- 
facturer who  sells  directly  to  jobbers,  retailers,  and  con- 
sumers, requires  a  selling  organization  that  difl'ers  rad- 
ically from  the  one  that  would  suffice  if  he  distributed 
his    products    exclusively    through    wholesale    dealers. 
Likewise  a  strictly  local  retail  store  does  not  need  the 
same  sort  of  organization  that  would  be  required  if  it 
sold  goods  by  mail  as  well  as  over  the  counter.     This 
does  not  mean  that  a  retail  dealer,  for  example,  must 
necessarily  have  a  larger  force  of  employes  to  handle 
a  combined  mail-order  and  over-the-counter  business 
than  would  be  sufficient  to  conduct  either  one  of  these 
activities  alone;  nor  does  it  mean  that  a  manufacturer 
could  not  use  the  same  salesmen  to  sell  in  many  in- 
stances successfully  both  to  jobbers  and  to  retailers. 

In  any  scheme  of  organization  the  distinction  be- 
tween the  several  units  in  the  system  is  one  of  functions 
and  not  necessarily  of  individuals.  This  fundamental 
principle  will  be  emphasized  in  the  consideration  of  each 
of  the  three  suggestive  methods  of  organization  that  are 
presented  in  this  chapter,  but  it  is  weU  to  state  it  at  the 
beginmng  so  that  it  can  be  borne  in  mind  throughout 
the  discussion.  The  statement  that  different  selling 
methods  requir ,  different  methods  of  sales  department 

46 


SALES  DEPARTMENT  ORGANIZATION 


47 


organization  means  simply  that  the  character  of  the 
activiti'^s  of  the  different  members  of  the  organization 
and  frequently  the  relation  of  the  members  to  one  an- 
other depend  largely  on  the  market  that  is  being  sought 
and  the  methods  that  are  being  used  to  reach  it. 

The  sales  department  of  a  retailer,  a  jobber,  and  a 
manufacturer  differ  in  characteristics  of  organization. 
It  is  not  possible  in  the  consideration  of  the  organization 
l)roblems  of  these  three  classes  to  present  any  schemes  of 
organization  that  can  be  regarded  as  typical.  There 
are  no  typical  retail  or  wholesale  selling  organizations, 
because  the  functions  of  the  selling  force  of  a  mail-or- 
der dealer^  are  different  from  the  functions  of  the  sell- 
ing force  of  a  retail  or  jobbing  establishment  that  does 
little  or  no  mail-order  business.  In  like  manner, 
methods  of  sales  department  organization  for  a  manu- 
facturer are  as  varied  as  the  selling  methods  that  he  may 
adopt.  Any  plan  of  sales  department  organization  that 
is  presented,  therefore,  can  be  typical  only  of  a  single 
class  of  retailers  or  of  jobbers  or  of  manufacturers.  In 
considering  the  organization  problems  of  each  type  of 
distributer,  we  shall  outline  a  system  that  is  suggestive 
of  methods  that  are  generally  employed  in  certain  com- 
mon classes  of  the  type  under  consideration,  and  we  shall 
then  indicate  briefly  some  modifications  of  the  suggest- 
ive system  that  are  necessary  to  adapt  it  to  other  classes 
of  distributers  in  the  same  group. 

43.  Retail  sales  department  organization. — There  are 
three  methods  of  selling  goods  at  retail — by  the  retail 
store,  by  mail,  and  by  means  of  salesmen  to  call  upon 
consumers.  The  first  two  of  these  methods  can  be  con- 
veniently combined,  while  the  last  is  customarily  em- 
ployed alone.  For  most  commodities,  one  or  both  of 
the  first  two  methods  are  the  normal  ones.    Salesmen 


I 


SELLING  AND  BUYING 

to  call  upon  consumers  are  employed  only  in  exceptional 
cases;  and  this  method  of  marketing  is  not  general 
enough  to  be  considered  typical  of  retail  distribution. 
Accordingly,  in  a  general  consideration  of.  retail  sales 
department  organization  it  will  be  sufficient  to  have  in 
mind  an  establishment  that  employs  only  the  first  two 
methods  of  reaching  consumers. 

A  department  store  is  the  most  highly  developed 
form  of  retail  selling.  It  possesses  certain  character- 
istics that  differentiate  it  from  the  "single  line"  estab- 
lishment, but  the  fundamental  features  of  its  organiza- 
tion are  typical  of  those  of  the  majority  of  retail  stores. 
Diagram  I  represents  the  relation  between  the  different 
members  of  the  selling  organization  and  the  principal 
hnes  of  authority  and  of  contact  in  many  department 
stores. 

This  is  not  a  complete  chart  for  the  entire  organiza- 
tion of  a  department  score  or  other  large  retail  estab- 
lishment. In  most  stores  of  this  class  there  are  three 
chief  divisions.  The  first  of  these  has  charge  of  the 
stock  of  goods,  its  purchase  and  sale.  The  merchandise 
manager  is  normally  the  head  of  this  division.  The 
second  division  is  concerned  with  the  physical  features 
of  the  store  itself,  instead  of  with  the  goods  that  are 
bought  and  sold.  The  store  superintendent  is  usually 
in  charge  of  this  division.  He  is  responsible  for  the 
physical  appearance  of  the  store  building,  for  the  ar- 
rangement of  aisles,  counters,  and  showcases,  and  for 
the  conveniences  that  are  offered  to  patrons,  such  as 
rest  rooms,  parcel  checking  facilities,  and  restaurants. 
He  IS  in  charge  of  the  heating  plant  and  the  janitors, 
and  he  ordinarily  directs  the  activities  of  the  stable  em- 
ployes, the  wagon  men,  and  the  delivery  clerks  He  is 
only  indirectly  concerned  with  selling,  through  his  cus- 


49 


I1I-4 


SELLING  AND  BUYING 


? 


I 


"ft 
ifi 


tomary  supervision  of  the  floor-walkers  or  aisle-man- 
agers and  his  function  of  hiring  and  of  enforcing  disci- 
pline among  the  force  of  salespeople.  The  last  great 
division  embraces  the  cashiers,  accountants,  and  other 
employes  engaged  in  non-selling  activities,  who  are  not 
subordinate  to  the  store  superintendent. 

A  complete  chart  of  department  store  organization 
would  show  the  lines  of  authority  and  contact  among  all 
the  members  of  these  three  divisions.  We  are  con- 
cerned, however,  only  with  the  strictly  selling  activities 
of  the  store.  For  that  reason  our  organization  chart 
shows  in  detail  only  the  first  of  the  divisions  and  enough 
of  the  second  to  indicate  its  connection  with  the  selling 
force. 

44.  Merchandise  manager. — Sales  department  or- 
ganization is  best  illustrated  by  the  consideration  of  a 
highly  developed  establishment  in  which  no  individual 
serves  in  more  than  one  capacity.  At  the  head  of  the 
business  is  the  owner  or  general  manager  who  has  super- 
vision over  the  entire  organization.  The  inmiediate  di- 
rection of  the  different  classes  of  activities  are  delegated 
by  him  to  officials  in  charge  of  the  various  divisions  that 
were  mentioned  in  the  preceding  paragraph.  The 
official  in  charge  of  the  stock  of  goods  that  are  offered 
for  sale  is  commonly  known  as  the  merchandise  man- 
ager. He  is  the  real  sales  manager  of  the  store.  The 
entire  selling  force  of  the  establishment  are  either  di- 
rectly or  indirectly  subordinate  to  him,  and  he  is  respon- 
sible for  carrying  out  the  selling  policies  of  the  manage- 
ment. 

He  is  not  concerned,  however,  solely  with  the  sale  of 
goods.  The  chief  characteristic  of  the  sales  department 
of  a  retail  store,  as  distinguished  from  that  of  a  manu- 
facturer, for  example,  is  that  the  officials  in  charge  of 


SALES  DEPARTMENT  ORGANIZATION  61 

the  selling  in  a  retail  store  are  also  in  charge  of  the 
buying.  The  merchandise  manager,  therefore,  is  not 
only  the  sales  manager  but  he  is  also  the  buyer  of  the 
stock.  It  seems  to  be  an  accepted  principle  of  mer- 
chandising that  when  goods  are  bought  to  be  sold  again, 
the  same  individual  must  be  made  responsible  for  both 
the  buying  and  the  selling.  In  a  factory  these  two  ac- 
tivities are  usually  distinct,  because  the  purchase  is 
usually  of  raw  materials  and  the  sale  is  of  the  finished 
product.  The  man  who  knows  the  most  about  the  thing 
to  be  sold,  therefore,  is  not  necessarily  the  one  with  the 
most  intimate  knowledge  of  the  raw  materials  that  en- 
ter into  its  manufacture,  and  for  this  reason  a  manu- 
facturer's sales  department  is  ordinarily  entirely  dis- 
tinct from  his  buying  department. 

In  merchandising,  however — in  the  purchase  of  goods 
and  their  subsequent  sale  without  alteration  in  form — 
by  far  the  most  important  factor  in  profitable  selling 
is  intelligent  and  economical  buying.  There  are,  of 
course,  other  factors  that  enter  into  the  making  of 
profits  in  a  merchandising  establishment,  but  not  nearly 
to  the  extent  that  the  productive  processes,  for  example, 
determine  the  profit  on  a  manufactured  article.  In  a 
retail  or  wholesale  store,  therefore,  there  is  an  exceed- 
ingly close  connection  between  the  buying  and  the  sell- 
ing of  the  stock.  Profitable  buying  depends  not  only 
on  a  knowledge  of  the  goods  themselves,  but  probably  to 
a  far  greater  degree  on  a  knowledge  of  present  demand, 
and  on  the  ability  to  forecast  the  demand  of  the  future. 
This  knowledge  and  ability  are  best  acquired  by  actual 
selling  experience,  and  for  that  reason  the  members  of 
the  store  organization  who  are  entrusted  with  the  pur- 
chase of  its  stock  are  almost  invariably  recruited  from 
the  selling  force.    Because  of  their  selling  experience 


r>2 


SELLING  AND  BUYING 


i:'^ 


they  are  well  qualified  to  direct  the  operations  of  the 
sales-people;  and,  because  of  the  close  connection  be- 
tween store  buying  and  selling,  it  is  entirely  feasible  to 
place  department  heads  in  charge  of  both  of  these  ac- 
tivities. 

45.  Buyers. — In  a  small  establishment  the  merchan- 
dise manager  may  purchase  all  of  the  stock,  and  imme- 
diately supervise  all  of  the  seUing.  In  a  larger  store, 
however,  he  can  not  give  his  personal  attention  to  the 
purchase  and  sale  of  the  entire  stock.  In  such  cases  it 
is  customary  to  divide  the  store  into  sections  or  depart- 
ments, basing  the  division  upon  the  kinds  of  goods  that 
are  carried.  For  instance,  in  a  large  department  store 
there  might  be  the  following  departments  or  goods  sec- 
tions: Clothing,  dress  goods,  food  supplies,  furniture, 
hardware,  shoes,  notions,  books,  etc.  In  charge  of  each 
of  these  departments  is  an  official  who  is  usually  known 
as  a  buyer.  The  buyers  are  the  lieutenants  of  the  mer- 
chandise manager  and  are  directly  responsible  to  him. 
Because  the  merchandise  manager  directs  both  the  buy- 
ing and  selling,  the  buyers  also  combine  these  two  ac- 
tivities. They  purchase  the  stock  for  their  respective 
departments  and  they  may  also  be  considered  as  as- 
sistant sales  managers  of  the  store. 

Each  buyer  keeps  in  close  touch  with  all  the  details 
of  the  work  of  his  department.  He  purchases  goods, 
he  fixes  prices,  directs  the  display  of  stock,  and  super- 
vises the  work  of  the  people  who  actually  make  the  sales 
to  consumers.  He  spends  as  much  time  as  he  can  be- 
hind the  counters  of  his  section  making  actual  sales, 
listening  to  the  remarks  of  shoppers,  learning  what  the 
public  want,  and  ti  v'ng  to  foresee  future  demand.  If 
he  does  not  get  his  information  at  first  hand,  he  trains 


SALES  DEPARTMENT  ORGANIZATION 


as 


his  selling  force  to  secure  it  for  him,  and  to  transmit  all 
essential  data  by  means  of  a  system  of  reports. 

If  the  business  is  of  sufficient  size,  the  various  depart- 
ments or  goods  sections  may  be  divided  into  sub-sections, 
each  in  charge  of  an  assistant  buyer.  For  instance,  if 
a  large  store  has  a  department  of  food  supplies,  this 
may  be  divided  into  three  subsections,  dealing  respect- 
ively in  groceries,  meats,  and  bakery  goods.  The  re- 
lation of  the  assistant  buyers  in  a  department  to  their 
chief  buyer  is  practically  the  same  as  that  of  the  chief 
buyers  to  the  merchandise  manager.  The  department 
head  confines  his  work  to  supervision  and  the  deter- 
mination of  policies,  and  the  detail  of  supervising  much 
of  the  buying  and  selling  is  left  to  the  assistant  buyers. 

46.  Sales-people. — The  sales-people  are  the  last  unit 
in  the  strictly  selling  organization.  They  are  the  only 
members  of  the  sales  department  of  the  store  who  do 
not  buy  as  well  as  sell,  although  even  in  their  case  there 
is  not  always  a  distinct  separation  of  these  two  func- 
tions, because  the  superiors  of  the  sales-people  usually 
encourage  them  to  observe  conditions  and  make  sug- 
gestions that  may  be  of  benefit  to  the  buyers  in  pur- 
chasing stock.  One  or  more  of  the  sales-people  in  any 
department  are  usually  being  constantly  trained  as  un- 
derstudies for  the  buyer,  so  that  m  event  of  his  absence 
or  promotion  there  may  be  some  one  fitted  to  carry  on 
his  work. 

In  a  complex  organization,  such  as  that  which  has 
been  described,  the  sales-people  are  directly  responsible 
to  the  assistant  buyers.  In  a  smaller  organization  the 
buyers  themselves  direct  the  selling  force;  and,  if  there 
arc  no  department  managers  or  buyers,  the  merchandise 
manager  has  immediate  authority  over  the  selling  force. 


n-k 


SKLLING  AND  BUYING 


1. 
;  I- 


That  is  to  say,  the  sales-people  are  primarily  members 
of  the  strictly  selling  organization,  and  their  selling 
functions  are  necessarily  directed  by  the  officials  of  the 
sales  department.     In  most  large  stores,  however,  the 
buyers  or  merchandise  manager  do  not  have  complete 
auvhority  over  the  sales-people.     For  instance,  the  sales 
department  does   not   ordinarily   have  charge  of  the 
hiring   of  sales-people.     When   a   buyer  or   assistant 
buyer  wants  additional  assistance  in  his  department,  he 
notifies  the  store  superintendent  of  his  needs,  and  that 
official  is  charged  with  supplying  the  ad<litional  sales- 
people, either  by  hiring  them  or  by  transferring  them 
from  some  other  department  where  they  may  not  be 
needed.    The  store  superintendent  is  also  usually  re- 
sponsible for  the  enforcement  of  discipline  among  the 
sales-people,  and  it  is  his  duty  to  see  that  their  reports, 
sales  tickets,  delivery  slips,  and  the  like,  are  made  out 
in  proper  form.     In  supervising  those  activities  of  the 
sales-people  for  which  he  is  responsible,  he  is  assisted 
by  the  floor-walkers  or  aisle  managers. 

The  system  whereby  the  authority  over  the  sales-peo- 
ple is  divided  between  the  merchandise  manager  and 
the  store  superintendent  and  their  respective  assistants, 
is  possibly  not  in  accord  with  one  of  the  principles  of 
organization  that  is  often  considered  as  fundamental. 
This  principle  teaches  that  the  best  results  are  secured 
by  giving  to  each  official  definite  and  exclusive  authority 
over  the  group  of  employes  immediately  below  him. 
Recent  tendencies  in  industrial  organization,  however, 
indicate  that  this  principle  is  possibly  not  so  universally 
applicable  as  has  been  supposed.  The  military  "staff 
and  line"  system  which  has  been  applied  successfully  to 
large  industrial  undertakings,  and  which  is  sponsored  by 


SALES  DEPARTMENT  ORGANIZATION  M 

the  modem  efficiency  experts,  recognizes  the  advantages 
of  assigning  definite  supervisory  functions  to  each  of 
two  or  more  superiors  who  have  common  authority  over 
a  certain  group  of  employes.  To  this  extent  modem 
organization  ideas  are  in  line  with  the  custom  of  de- 
paument  stores;  but  whether  the  department  organiza- 
tion that  embodies  a  division  of  authority  over  the  sales-* 
people  is  or  is  not  scientific,  it  seems  to  work  well  in  the 
majority  of  cases. 

47.  Variations  in  departmertal  organization. — The 
relation  that  has  been  described  between  the  divisions 
presided  over  respectively  by  the  merchandise  manager 
and  the  store  superinterr^ent  is  characteristic  of  a  great 
many  stores,  but  it  is  ^y  no  means  universal.     The 
floor-walkers  or  aisle  managers,  for  instance,  are  some- 
times considered  an  integral  part  of  the  selling  organi- 
zation, and  they  are  made  directly  responsible  to  the 
buyers  or  to  the  merchandise  manager  instead  of  to 
the  store  superintendent.    This  arrangement  helps  to 
concentrate  authority,  and  where  it  is  in  effect  the  store 
superintendent  is  usuaUy  relieved  of  all  supervision  over 
the  sales-people.    The  customary  method  of  organiza- 
tion, however,  is  that  shown  in  the  chart.     The  floor- 
walkers have  little  or  nothing  to  do  with  the  purchase 
or  sale  of  goods.    They  are  usually  in  no  way  responsible 
for  the  sales  in  the  departments  to  which  they  are  as- 
signed.    Their  duties  are  to  enforce  discipline,  to  see 
that  customers  are  served  and  to  look  out  for  their  com- 
fort in  all  possible  ways,  and  to  be  responsible  for  the 
physical  aspect  of  the  part  of  the  store  over  which  they 
have   jurisdiction.     If   the    store    superintendent    has 
general  supervision  over  these  matters  (and  they  are 
certainly  within  his  province  rather  than  within  that  of 


SG 


SELLING  AND  BUYING 


I  i 


the  selling  department),  it  is  logical  for  the  floor- 
walkers  to  be  subordinate  to  him  instead  of  to  the 
merchandise  manager. 

In  some  large  retail  stores  there  is  an  official  with 
the  title  of  sales  manager,  whose  duties  are  distinct 
from,  or  subordinate  to.  those  of  the  merchandise  man- 
ager.   The  functions  of  such  an  official  vary  so  greatly, 
however,  in  different  establishments,  that  he  can  not 
be  said  to  occupy  a  definite  position  in  retail  sales  de- 
partment organization.     He  usually  has  no  responsi- 
bility whatever  for  the  purchase  of  stock.     In  some 
stores  he  is  interested  only  in  the  development  of  the 
efficiency  of  the  sales  force.     He  may  have  general 
supervision  over  the  sales-people.  or  he  may  be  merely 
the  instructor  in  the  school  of  salesmanship  that  many 
establishments  maintain  for  their  employes.     In  other 
stores  the  sales  manager  confines  his  activities  to  the 
management  of  the  big  selling  movements  of  the  store, 
such  as  planning  the  special  sales  and  seeing  that  they 
are  properly  merchandised,  displayed,  and  advertised. 
In  these  latter  cases  he  simply  relieves  the  merchandise 
manager  of  a  portion  of  his  responsibility  and  is  prac- 
tically co-ordinate  in  authority  with  him.     In  the  other 
cases,  however,  he  is  subordinate  to  the  merchandise 
manager. 

The  time  may  come  when  a  definite  division  between 
the  buying  and  selling  functions  wiU  be  characteristic 
of  retail  store  organization,  but  this  division  is  not 
general  at  the  present  time.  The  merchandise  man- 
ager IS  really  the  sales-manager  just  as  he  is  also  the 
chief  buyer,  and  his  immediate  subordinates  in  a  large 
organization  can  just  as  logicaUy  be  called  assistant 
sales  managers  as  buyers.  The  usual  retail  store  or- 
ganization, however,  is  based  chiefly  on  the  buying  side 


SALES  DEPARTMENT  ORGANIZATION  57 

of  tlie  dual  functions  of  its  officials,  and  their  titles  are 
usually  derived  from  their  purchasing  instead  of  from 
tlieir  selling  activities. 

48.  Advertinng  department.— In  the  chart  of  retail 
store  organization  the  advertising  department  is  shown 
as  being  distinct  from  the  merchandise  department. 
The  relation  between  the  advertising  and  sales  depart- 
ments in  any  organization  is  a  matter  in  which  there 
is  no  uniformity  of  opinion  or  practice.  The  earlier 
practice  was  for  the  advertising  manager  to  be  subor^ 
(liiiate  to  the  sales  manager.  Perhaps  the  ordinary 
custom  now  is  for  these  two  officials  to  be  co-ordinate 
in  authority.  Advertising  men  generally  maintain  that 
the  logical  procedure  is  to  combine  the  two  departments 
under  a  single  head.  Possibly  one  reason  why  this  has 
not  been  done  to  any  extent  in  retail  store  organiza- 
tion is  that  every  sale  has  two  phases — ^getting  the  cus- 
tomer into  the  store,  and  caring  for  hun  when  he  ia 
once  there.  The  advertising  manager  is  charged  with 
the  responsibility  of  getting  customers  into  the  store. 
Formerly  his  authority  stopped  there,  but  now-a-days 
he  is  also  responsible  for  the  numerous  display  devices 
that  tempt  the  customer  to  buy  as  he  wanders  through 
the  store. 

It  is  difficult  to  say  just  where  the  authority  of  the 
advertising  manager  should  cease  and  that  of  the  sales 
or  merchandise  manager  should  begin.  Each  is  en- 
gaged in  one  phase  of  selling,  and  whatever  their 
nominal  relation  may  be,  they  must  work  in  the  full- 
est harmony  with  each  other.  The  mail-order  depart- 
ment is  one  phase  of  the  store's  activity  in  which  their 
authority  conflicts.  Because  selling  by  mail  is  one 
method  of  coming  into  direct  contact  with  the  consumer 
and  of  disposing  of  merchandise,  the  diart  shows  the 


58 


SELLING  AND  BUYING 


mail-order  manager  as  being  subordinate  to  the  mer- 
chandise manager.  It  is  evident,  however,  that  many 
of  the  methods  of  seeurmg  mail-orders  must  be  under 
the  supervision  of  the  advertising  manager.  Mail- 
order selling  depends  largely  on  advertising  for  its 
success.  The  preparation  of  the  catalogues  and  follow- 
up  material  is  certainly  an  advertising  proposition.  If 
the  advertising  manager  is  not  a  salesman,  his  advertise- 
ments will  be  ineffective,  and  if  the  merchandise  mana- 
ger and  his  assistants  have  no  knowledge  of  the  prob- 
lems of  advertising,  neither  department  can  work  to  the 
greatest  advantage.  More  and  more  the  vital  connec- 
tion between  advertising  and  selling  is  becoming  recog- 
nized, and  it  is  probable  that  in  the  future  there  will 
be  no  distinct  division  between  the  two  departments. 

For  the  sake  of  convenience  in  the  discussion  of  a 
retail  selling  organization,  we  have  been  considering  a 
store  in  which  a  separate  mdividual  embodies  each  of 
the  functions  that  have  been  mentioned.  This  condi- 
tion, however,  can  not  exist  in  a  small  store  where  a 
single  person  may  perform  all  of  the  functions  that 
are  divided  among  the  staff  of  a  larger  organization. 
The  small  proprietor  may  be  his  own  merchandise  mana- 
ger, buyer,  and  salesman.  He  may  handle  all  mail- 
orders himself  and  also  be  his  own  advertising  manager. 
Whether  one  man  performs  all  of  these  various  func- 
tions, however,  or  whether  the  organization  is  as  com- 
plex as  that  of  a  great  department  store,  the  dif- 
ferentiation between  the  kinds  of  activities  of  the  store 
is  always  the  same;  and  it  is  always  possible  with  the 
growth  of  the  business  to  develop  the  organization  along 
lines  parallel  to  these  functions. 

49.  Lack  of  uniformity  in  wholesale  selling  organi- 
zationg.— There  is  probably  less  uniformity  in  the  sales 


§ 


60 


SELLING  AND  BUYING 


department  organization  njetlu)(ls  of  wholesale  houses 
than  in  tlie  case  of  any  other  class  of  distributers. 
There  is,  however,  a  tendency  in  the  jobbing  trade  to- 
ward the  development  of  an  organization  similar  in  its 
essential  features  to  that  of  a  large  retail  department 
store.    An  outline  of  a  possible  sales  department  or- 
ganization along  these  lines  for  a  wholesale  business  is 
shown  by  Diagram  II.     It  must  not  be  understood  that 
the  suggested  system  is  typical;  for  there  is  no  typical 
wholesale  selling  organization.     It  does,  however,  em- 
l)ody  some  of  the  best  features  of  the  most  progressive 
jobbiiig  houses,  and  it  suggests  the  lines  along  which 
wholesale  selling  organization  methods  generally  may 
develop  in  the  future. 

50.  Manager  of  departmentg.— In  a  wholesale,  as  in 
a  retail,  business  the  functions  of  buying  and  selling 
are  very  closely  related.     Goods  are  purchased  to  be 
sold  again  without  change  in  form,  and  gross  profits 
are  largely  dependent  on  wise  buying.    There  does  not 
seem  to  be  any  necessary  division  between  the  buying 
and  selling  functions,  at  least  as  far  as  the  duties  of 
executive  officers  are  concerned.     The  buyer  must  be 
most  intimately  in  touch  with  the  market,  and  the  seller 
must  have  an  exact  knowledge  of  the  conditions  un- 
der whidi  goods  are  purchased.     Therefore  in  a  job- 
bing house,  as  in  a  retail  store,  it  is  customary  for  one 
individual  to  combine  the  functions  of  buying  and  of 
sui>ervising  sales.     In  a  typical  case  the  small  jobber 
l)oth   buys   and   sells  his   entire  stock.     If  he   has  a 
partner,  the  partner  attends  to  the  purchase  of  a  part 
of  the  stock,  but  they  both  usually  act  as  salesmen  for 
tie  entire  line,  or  else  they  jointly  supervise  the  work 
of  one  or  more  general  salesmen.     In  the  executive 


SALES  DEPARTMENT  ORGA^IIZATION  61 

offices,  however,  there  is  ordinarily  no  separation  of  the 
functions  of  buying  and  selling. 

As  the  business  develops  there  may  be  so  many  dif- 
ferent lines  handled  and  the  total  business  may  be  so 
large  that  it  becomes  necessary  to  divide  the  organi- 
zation into  departments.  Each  of  the  department 
heads  has  a  definite  part  of  the  stock  to  purchase,  and 
he  is,  in  addition,  responsible  for  its  sale.  Where  there 
is  departmentation  of  any  sort,  however,  it  is  necessary 
for  some  one  to  be  superior  to  all  the  department  heads 
and*  to  correlate  their  activities.  This  is  usually  the 
owner  or  general  manager  of  the  business,  but  in  the 
largest  organizations  he  is  frequently  given  the  title 
of  manager  of  departments.  He  is  the  sales  manager 
and  the  chief  buyer,  and  his  relation  to  the  heads  of 
departments  is  similar  to  that  of  a  retail  merchandise 
manager  to  the  buyers  who  operate  under  his  super- 
vision. 

51.  Department  managers. — Each  of  the  department 
managers  is  in  general  charge  of  one  or  more  of  the 
lines  that  are  offered  for  sale.  For  instance,  some  of 
the  departments  in  a  wholesale  grocery  may  be  as  fol- 
lows: canned  goods;  tea,  coffee,  and  spices;  fresh  fruit 
and  produce;  soap  and  laundry  supplies;  confectionery; 
and  cigars  and  tobacco.  Each  department  manager 
buys  the  stock  for  his  department,  fixes  its  price;,  and 
sees  that  the  salesmen  give  it  the  attention  to  which 
its  importance  may  entitle  it. 

52.  Specialty  salesmen. — In  a  highly  developed  whole- 
sale business,  some  of  the  departments  may  employ  so- 
called  specialty  salesmen  to  handle  their  respective  lines 
exclusively.  This  is  usually  the  case  when  the  success- 
ful sale  of  an  article  demands  a  detailed  familiarity 


6S 


SELLING  AND  BUYING 


with  it  which  can  only  be  acquired  by  a  salesman  who 
gives  his  entire  time  to  it,  or  when  a  jobber  specializes 
in  a  certain  line  and  wishes  to  push  it  by  means  of 
specialty  salesmen  as  well  as  the  general  salesmen.  For 
example,  many  wholesale  grocers  specialize  in  cigars 
and  tobacco,  and  they  frequently  employ  salesmen  to 
handle  these  lines  exclusively.  When  specialty  sales- 
men are  employed,  they  usually  work  directly  under 
the  supervision  of  the  department  manager  who  is  in 
charge  of  the  line  that  they  sell,  and  they  are  only  in- 
directly responsible  to  the  manager  of  departments. 

53.  General  salesmen. — With  the  exception  of  the 
comparatively  few  instances  in  which  specialty  sales- 
men are  employed,  the  entire  line  of  a  wholesale  house 
is  usually  handled  by  general  salesmen.  Even  if  there 
are  specialty  salesmen  for  some  departments,  the 
special  lines  are  sold  not  only  by  the  specialty  sales- 
men but  are  handled  by  the  general  salesmen  as  well. 
In  some  houses  the  general  salesmen  are  directly  con- 
trolled by  the  various  department  managers.  It  is 
obvious,  however,  that  this  system  may  be  productive 
of  conflicting  directions  to  the  salesmen,  and  of  a 
failure  to  follow  the  general  selling  policy  that  may 
be  for  the  best  interest  of  the  business  as  a  whole. 
Each  department  manager  is  naturally  anxious  that  his 
department  shall  lead  the  others,  and  if  he  is  permitted 
to  direct  the  activities  of  the  general  salesmen,  he  is 
likely  to  forget  that  the  other  departments  have  an 
e(iual  claim  upon  their  services,  and  he  may  be  tempted 
to  issue  instructions  in  opp<jsition  to,  instead  of  in  har- 
mony with,  the  instructions  of  the  other  department 
heads.  Accordingly  it  is  advisable  to  make  the  general 
salesmen  directly  responsible  only  to  the  manager  of 
departments. 


SALES  DEPARTMENT  ORGANIZATION  63 

Before  communicating  with  the  salesmen  on  any  im- 
portant point,  a  department  manager  should  refer  the 
matter  to  the  manager  of  departments,  and  the  responsi- 
bility for  all  directions  to  the  salesman  should  rest 
upon  him.     He  is  the  general  sales  manager.    It  is  his 
duty  to  direct  and  control  the  natural  competition  be- 
tween the  departments  so  that  the  best  interests  of  the 
business  as  a  whole  will  be  advanced;  and  if  any  de- 
partment head  issues  instructions  to  the  general  sales- 
men, it  should  be  understood  that  the  instructions  come 
from  and  are  approved  by  the  manager  of  departments. 
The  best  results  will  be  secured  if  all  instructions  bear 
his  signature.     The  heads  of  departments  come  into 
constant  contact  with  the  general  salesmen,  but  the 
salesmen  are  not  logically  directly  subordinate  to  them. 
There  are  usually  three  classes  of  general  salesmen 
—floor  or  store  salesmen,  city  salesmen,  and  traveUng 
salesmen.     The  store  salesmen  wait  upon  customers  who 
come  to  the  store  to  select  their  stock.     In  many  lines 
there  are  fixed  seasons  of  the  year  when  out-of-town 
dealers  come  to  the  central  markets  in  large  numbers  to 
make  their  purchases.     There  must  always  be  adequate 
provision   for  taking  care  of  these  customers.    Fre- 
(luently  store  sales  are  made  by  the  department  heads, 
but  in  large  organizations  floor  salesmen  are  frequently 
maintained  for  this  purpose.     City  salesmen  call  upon 
tlealers  whose  places  of  business  are  in  the  city  where 
the  wholesale  house  is  situated.     Traveling  salesmen 
call  upon  out-of-towii  customers.     All  of  Ihese  classes 
of  salesmen  occupy  the  same  position  in  the  scheme 
ot  organization.     Their  general  functions  are  the  same, 
and  they  differ  only  with  respect  to  the  identity  of  the 
dealers  with  whom  they  come  into  contact. 
If  a  wholesale  house  does  a  large  mail-order  busi- 


64 


SELLING  AND  BUYING 


ness,  it  may  have  a  mail-order  manager,  who  is  nor- 
mally responsible  to  the  manager  of  departments. 
Such  an  official,  however,  is  not  so  essential  in  a  whole- 
sale as  in  a  retail  store.  A  large  proportion  of  the 
wholesale  salesmen's  orders  are  usually  sent  in  to  the 
house  by  mail,  and  most  of  these  orders  call  for  items 
to  be  supplied  by  several  of  the  departments.  Accord- 
ingly»  even  in  a  small  organization  there  is  usually  found 
a  responsible  order  department,  to  which  all  orders  are 
delivered  as  soon  as  they  have  been  approved  by  the 
credit  man.  Each  onier  is  then  usually  split  up  so  that 
each  department  head  is  kept  in  touch  with  the  demands 
upon  his  stock.  It  is  the  duty  of  the  order  department 
to  see  that  the  entire  order  is  filled  promptly  and  in 
accordance  with  the  customer's  wishes.  Because  prac- 
tically every  wholesale  organization  must  maintain  this 
department  to  care  for  the  large  proportion  of  the  sales- 
men's orders  that  are  received  by  mail,  there  is  or- 
dinarily no  necessity  for  a  separate  department  to  care 
for  the  orders  that  may  be  received  directly  from  cus- 
tomers. 

54.  Jobber's  advertising  department. — An  advertis- 
ing manager  as  a  separate  official  is  seldom  found  in 
jobbing  houses.  Most  jobbers  confine  their  advertis- 
ing activities  to  the  preparation  and  distribution  of  a 
general  catalogue  and  to  the  publication  of  circulars 
or  other  announcements  of  special  offerings.  The 
supervision  of  these  activities  is  usually  delegated  to  one 
of  the  department  managers.  There  are  other  kinds 
of  advertising  than  those  that  have  been  mentioned, 
however,  that  offer  great  opportunities  to  the  wholesale 
dealer.  Many  jobbers  advertise  in  trade  publications, 
and  an  increasing  number  are  realizing  the  possibilities 
of  house  organs  for  distribution  among  their  employes 


SALES  DEPARTMENT  ORGANIZATION 


65 


and  customers.  If  advertising  is  attempted  on  an  ex- 
tensive scale,  it  is  necessary  to  put  it  in  charge  of  an 
advertising  manager,  and  this  official  is  usually  sub- 
ordinate directly  to  the  owner  or  general  manager,  not 
because  the  general  purposes  of  his  activities  are  distinct 
from  the  aims  of  the  manager  of  departments,  but 
))ecause  it  is  not  yet  generally  customary  for  selling  and 
advertising  to  be  directed  in  detail  by  a  single  official. 

55.  Special  applications  of  the  suggestive  wholesale 
selling  organization, — The  chart  of  a  jobber's  selling 
organization  does  not  show  all  of  the  lines  of  contact 
between  the  selling  force  and  the  other  departments  of 
the  business.  The  credit  man  is  an  exceedingly  im- 
portant official  in  a  wholesale  house,  and  the  sales  de- 
partment must  work  in  the  closest  harmony  with  him, 
just  as  it  must  co-operate  with  the  officials  in  charge 
f)f  accounting,  shipping,  and  other  non-selling  activities. 
The  primary  purpose  of  the  chart  is  to  show  definite 
sul)ordination  of  authority,  and  only  those  lines  of  con- 
tact are  presented  that  are  necessary  to  indicate  the 
relations  between  members  of  the  selling  organization. 

As  has  been  suggested  previously,  any  chart  of  or- 
ganization shows  the  relation  of  functions  and  not  of 
individuals.  A  department  manager,  for  instance,  in 
a  wholesale  house  may  not  confine  himself  to  the  duties 
of  that  one  office.  He  may  also  be  a  salesman  actively 
engaged  in  calling  upon  the  retail  trade,  he  may  be  the 
advertising  manager  as  well,  or  he  may  have  assigned 
to  him  some  of  the  duties  of  one  or  more  of  the  other 
office  departments.  The  owner  or  general  manager  of 
the  store  may  be,  and  frequently  is,  the  active  mana- 
ger of  departments.  The  extent  to  which  one  indi- 
vidual confines  himself  to  the  duties  connected  with  a 
single  unit  in  the  chain  of  authority  depends  solely  on 

II 1-5 


66 


SELLING  AND  BUYING 


the  size  of  the  establishment.  What  has  been  said 
about  the  general  application  of  the  scheme  of  retail 
sales  organization  applies  in  the  case  of  the  jobber  as 
well.  The  plan  that  has  been  outlined  is  seldom  found 
in  its  entirety  in  any  one  wholesale  house.  It  repre- 
sents, however,  the  general  tendency  in  sales  depart- 
ment organization  in  the  jobbing  trade.  It  embodies 
the  characteristic  features  of  every  largely  successful 
business — specialized  activities,  departmentation,  and 
direct  responsibility  and  delegation  of  authority. 


CHAPTER  VI 


MANUFACTURERS'  SALES  DEPARTMENT 
ORGANIZATION 

56.  Dependence  of  manufacturers'  selling  organiza- 
tion upon  selling  methods. — In  the  sections  dealing  with 
manufacturers'  selling  methods  it  was  shown  that  there 
are  three  possible  classes  of  customers  for  a  manufac- 
turer's products — ^jobbers,  retailers,  and  consumers. 
A  manufacturer  can  reach  any  of  the  classes  of  cus- 
tomers that  he  may  select,  by  salesmen,  by  mail,  by 
retail  stores  of  his  own,  by  independent  agents  who  may 
buy  his  products  to  sell  them  again,  or  by  branch-houses 
that  he  may  establish  throughout  his  territory  to  handle 
the  business  in  their  vicinities.  His  sales  department 
organization  depends  primarily  on  the  market  and  the 
selling  methods  that  he  may  select.  Because  of  the 
number  of  these  selling  methods  and  the  many  possible 
combinations  of  one  or  more  of  them,  it  is  evident  that 
there  can  be  no  typical  method  of  sales  department 
organization  for  a  manufacturer.  In  order  to  indicate 
the  possibilities  of  sales  department  organization  in  any 
particular  manufacturing  establislunent  it  is  necessary 
to  have  in  mind  a  bu«ness  tb^  readies  all  possible 
classes  of  customers  and  uti&es  all  possible  selling 
methods.  A  general  outliae  of  the  sdling  organizaticxi 
of  such  aa  industry  is  ^lown  in  the  diart  on  page  68 
(Diagram  III).  The  insaginary  manufacturer  whose 
sales  department  is  there  represented  sells  his  products 
(lirectlif  io   ajiy   one   who   wishes   to  purcfaaae   \keaL 

67 


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MANUFACl'URER'S  SFXLING  ORGANIZATION        69 

Therefore,   his  organization  must  reach  jobbers,  re- 
tailers, and  consumers.     The  contact  with  the  market 
is  effected  by  the  use  of  branch-houses,  salesmen,  inde- 
pendent agents,  retail  stores  owned  by  the  manufac- 
turer, and  a  system  for  handling  mail-orders.     Prob- 
ably no  manufacturer's  sales  department  is  as  exten- 
sive  as  the  imaginary  one  under  consideration,  but  a 
no  less  extensive  system  would  be  useful  in  suggesting 
plans  of  a  selling  organization  to  fit  all  the  possible 
marketing  methods  that  are  open  to  the  manufacturer.. 
57.  Two   differences    between    manufacturer's   and 
wholesaler's  or  retailer's  selling  organizations.— A  manu- 
facturer's selling  organization  differs  radically  from  the 
sales  department  of  a  wholesale  or  retail  store  in  two 
important  particulars: 

In  the  first  place,  a  manufacturer's  selling  officials 
have  nothing  to  do  with  buying.  In  a  small  factory, 
of  course,  the  sales  manager  may  also  be  the  purchasing 
agent,  but  this  is  simply  because  the  establishment  is 
small  and  it  is  not  possible  to  assign  a  different  individual 
to  each  activity.  The  problems  of  factory  buying  are 
entirely  distinct  from  the  problems  of  selling;  and  the 
best  results  are  obtained  when  factory  buying  and  sell- 
ing are  recognized  as  specialized  activities  and  are  super- 
vised by  separate  specialists. 

The  second  important  difference  between  wholesale 
or  retail  and  factory  sales  organization  is  found  in  the 
j)rineiples  that  underlie  departmentation.  In  a  whole- 
sale or  retail  store  we  have  seen  that  the  head  of  the 
department  (whether  he  is  called  a  buyer  or  a  de- 
partment manager)  is  in  charge  of  the  sale  of  a  cer- 
tain kind  of  goods.  In  a  department  store,  for  ex- 
ample, one  buyer  is  in  charge  of  groceries,  another  is 
ill  charge  of  dress  goods,  another  is  in  charge  of  fumi- 


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70 


SELLING  AND  BUYING 


ture,  and  still  others  are  in  charge  of  each  of  the  other 
kinds  of  goods  that  are  sold.  In  a  factory  organiza- 
tion, however,  the  divisions  in  the  sales  department  are 
not  ordinarily  based  on  the  different  kinds  of  goods  that 
are  sold  but  on  the  different  ways  in  which  they  are 
sold.  Thus,  in  the  organization  shown  in  the  chart,  no 
account  is  taken  of  the  different  products  that  may  be 
made  by  the  factory.  The  basis  of  departmentation 
is  solely  the  different  methods  used  by  the  manufacturer 
to  distribute  his  goods.  It  is  not  true,  however,  that 
this  principle  of  departmentation  is  universally  applied 
in  manufacturing  establishments.  If  the  total  business 
is  large,  and  if  a  considerable  number  of  different  kinds 
of  articles  are  produced,  a  separate  sales  manager  is 
sometimes  in  charge  of  the  sale  of  each  class  of  com- 
modities, and  under  each  sales  manager  is  a  complete 
organization  designed  to  reach  the  market  that  has  been 
selected,  in  accordance  with  the  selling  methods  that 
have  been  deemed  advisable. 

A  certain  manufacturing  establishment,  for  example, 
does  a  large  business  in  a  number  of  more  or  less  closely 
aUied  lines.  It  manufactures  many  kinds  of  soaps  for 
family  use,  soap-chip  for  laundries,  and  lard  com- 
pound ;  it  deals  in  cotton-seed  oil  and  in  glycerine  and 
other  by-products  of  its  main  productive  processes. 
For  each  class  of  products  there  is  a  sales  organization 
that  is  maintained  separately  from  all  the  others.  This 
condition,  however,  is  not  typical  of  the  manufacturing 
field.  In  most  factories  there  is  a  single  selling  organi- 
zation, presided  over  by  a  single  sales  manager  who  is 
responsible  for  the  distribution  of  all  of  the  products. 

58.  Sales  manager. — In  a  manufacturer's  organiza- 
tion the  official  who  is  in  charge  of  selling  is  almost 
always  called  the  sales  manager.     He  is  responsible 


MANUFACTURER'S  SELLING  ORGANIZATION        71 

only  to  the  owner  or  to  the  general  manager.    In  a 
small  business  he  may  be  an  active  salesman  as  well 
as  a  manager  of  salesri  en,  and  he  may  personally  exer- 
cise detailed  supervision  over  many  of  the  activities  that 
would   be  under  the  inmiediate  supervision  of   sub- 
ordinates in  a  larger  organization.    In  the  case  under 
consideration  he  is  purely  an  executive  official.     The 
number  of  selling  methods  of  which  he  has  general  con- 
trol is  so  large  that  he  has  found  it  necessary  to  dele- 
gate immediate  direction  of  the  different  activities  to 
five  officials  who  are  called,  respectively,  superintendent 
of  salesmen,  superintendent  of  branch-houses,  superin- 
tendent of  agencies,  superintendent  of  retail  stores,  and 
mail-order  manager. 

59.  Superintendents  of  different   Mnds  of  selling 
activities. — ^Whether  sales  are  made  to  jobbers,  retail- 
ers, or  consumers,  or  to  any  combination  of   these 
classes  of  customers,  the  method  of  distribution  by 
salesmen  is  exceedingly  conmaon  in  the  manufacturing 
field.     Some  official  must  be  directly  responsible  for  the 
activities  of  the  salesmen.    If  a  great  number  of  sell- 
ing methods  are  employed,  and  if  the  sales  manager, 
consequently,  can  not  give  personal  attention  to  all  the 
details  of  any  one  method  of  distribution,  it  is  customary 
to  place  the  immediate  supervision  of  salesmen  in  the 
hands  of  a  subordinate  of  the  sales  manager  who  may 
be  called  the  superintendent  of  salesmen.     Such  an 
official,  however,  is  seldom  necessary.    The  salesmen 
are  usually  so  vital  a  part  of  the  selling  organiza- 
tion, and  the  success  of  their  activities  is  so  largely 
responsible  for  the  success  of  the  enterprise,  that  or- 
dinarily the  sales  manager  retains  direct  supervision 
over  them  even  when  it  is  necessary  to  delegate  direct 
control  of  other  selling  agencies  to  subordinates. 


72 


SELLING  AND  BUYING 


60.  Salesmen.— The  chart  does  not  differentiate  be- 
tween    specialty     salesmen     and     general     salesmen. 
Specialty  salesmen  are  usually  employed  by  a  manu- 
facturer under  the  same  conditions  that  determine  the 
employment  of  specialty  salesmen  by  a  jobber.     In 
many  factory  sales  organizations,  even  though  a  single 
sales  manager  may  be  in  charge  of  the  sale  of  all  lines 
of  goods  that  are  produced,  separate  salesmen  are  as- 
signed to  the  sale  of  each  line.     In  other  cases  there 
IS  a  combination  of  specialty  and  general  salesmen,  and 
m  still  others  general  salesmen  alone  are  depended  on 
to  market  all  the  goods.     In  all  of  these  cases,  however, 
the  place  of  the  salesmen  in  the  scheme  of  organiza- 
tion is  the  same,  and  for  that  reason  there  is  no  dif- 
ferentiation  between  the  classes  in   the  organization 
chart. 

61.  Branch-houses.— The  organization  of  each 
branch-house  may  be  as  complex  as  that  of  the  main 
office  itself.  In  other  words,  each  branch-house  may 
have  salesmen  operating  directly  under  its  manager,  it 
may  have  supervision  over  other  branch-houses,  it  may 
seU  to  agents,  operate  retail  stores,  and  have  a  mail- 
order department.  It  is  not  customary,  however,  for  a 
branch-house  to  be  engaged  in  all  of  these  activities. 
The  typical  branch-house  functions  are  supervising 
local  salesmen  and  selling  to  local  agents;  and  these 
activities  alone  are  indicated  on  the  chart. 

62.  Agents— An  agent  is  technically  an  independent 
representative.  He  is  usuaUy  not  on  the  manufac- 
turer's pay  roll  and  the  manufacturer  has  only  the  most 
general  supervision  over  his  activities.  He  is  not  in 
reality  an  integral  part  of  the  manufacturer's  selling  or- 
ganization. Accordingly  in  any  business  that  dis- 
tributes goods  through  agents  it  is  not  necessary  to 


MANUFACTURER'S  SELLING  ORGANIZATION        73 

trace  the  sales  department  organization  further  than 
the  agent.  From  the  standpoint  of  the  manufacturer 
an  article  is  finally  disposed  of  when  it  is  purchased  by 
the  agent.  For  this  reason  the  chart  attempts  no  ex- 
planation of  methods  of  agency  organization.  The 
agent's  plan  of  selling  organization  may  be  that  of  a 
manufacturer,  jobber,  or  retailer,  depending  on  the 
market  he  is  trying  to  reach  and  the  seUing  methods 
he  has  adopted. 

63.  Manufacturer's  retail  »<ore».— Distribution  of 
goods  through  retail  stores  owned  by  the  manufacturer 
is  not  gene-il.  It  is  frequent  enough,  however,  to  be 
considered  as  one  of  the  possible  methods  of  market- 
ing that  is  open  to  a  manufacturer.  If  the  manu- 
facturer operates  but  one  retail  store,  the  superintendent 
of  retail  stores  and  the  retail  store  manager  are  the 
same  individual.  If  there  are  many  stores,  and  if  it 
is  not  possible  for  the  sales  manager  to  give  his  at- 
tention to  the  details  of  this  method  of  distribution,  it 
is  necessary  to  have  a  superintendent  in  charge  of  all 
of  the  retail  stores.  The  organization  of  each  retail 
store  is  practically  the  same  as  that  of  the  retail  store 
organization  that  we  have  already  considered.  To  be 
sure,  the  merchandise  manager  does  not  purchase  his 
stock  in  the  open  market,  but  he  has  to  make  requisition 
for  it  from  the  factory  in  accordance  with  his  needs, 
and  in  all  essential  particulars  he  has  the  same  duties 
as  the  selling  head  of  a  detached  retail  establishment. 

64.  Mail-order  department — The  mail-order  depart- 
ment is  co-ordinate  with  the  other  selling  departments. 
It  is  one  of  the  five  outlets  for  the  product  of  the 
factory,  and,  therefore,  is  under  the  general  control  of 
the  sales  manager. 

65.  Relation  of  sales  and  advertising  departments. — In 


T4  SELLING  AND  BUYING 

the  consideration  of  retail  and  wholesale  selling  organi 
zations  we  have  indicated  the  close  connection  betweei 
the  advertising  and  sales  departments.    What  has  beer 
said  with  regard  to  the  relation  between  these  depart- 
ments in  a  retail  or  wholesale  store  applies  to  a  manu- 
facturer's organization  as  well.     Commercial  advertis- 
ing is  just  as  truly  one  form  of  selling  as  is  direci 
personal  salesmanship.     Whether  the  immediate  pur- 
pose  of  advertising  is  to  create  interest  in  the  product, 
to  produce  inquiries,  or  to  bring  in  actual  orders  directly 
from  readers  of  the  advertisements,  the  ultimate  pur- 
pose of  all  commercial  advertising  is  solely  to  increase 
the  sale  of  the  goods  that  are  advertised.    Logically, 
therefore,  there  is  no  necessary  distinction  between  the 
sales  and  advertising  department.     This  is  the  conten- 
tion of  many  advertising  men,  who  maintain  that  ulti- 
mately the  advertising  manager  and  the  sales  manager 
in  every  industry  will  be  the  same  individual.     This 
condition,  however,  has  not  been  realized  as  yet.     Never- 
theless the  intimate  relation  between  advertising  and 
seUing  is  generally  recognized,  although  organization 
methods  differ  in  their  attempt  to  express  that  relation. 
Frequently  the  advertising  manager  is  subordinate  to 
the  sales  manager.     The  disadvantage  of  this  arrange- 
ment is  that  advertising  is  such  a  specialized  field  of 
endeavor  that  those  who  have  not  made  a  careful  study 
of  it  are  not  competent  to  pass  judgment  upon  its 
methods,  and  a  general  sales  manager  whose  practical 
experience  has  usually  been  entirely  in  the  line  of  per- 
sonal salesmanship  is  scarcely  in  a  position  to  exercise 
intelligent  supervision  over  the  details  of  advertising. 

Advertising  is  most  assuredly  selling,  and  all  the  prob- 
lems of  distribution  enter  vitally  into  the  problems  of 
advertising.     In  addition  to  these,  however,  advertising 


MANUFACTURER'S  SELLING  ORGANIZATION        75 

has  its  own  peculiar  problems,  which  can  be  solved  suc- 
cessfully only  by  a  man  who  has  had  professional  train- 
ing and  experience  in  the  great  field  of  practical 
jjublicity.  When  the  business  world  produces  a  suffi- 
cient number  of  executives  of  broad  experience  in  all 
phases  of  distribution,  it  will  undoubtedly  become  cus- 
tomary to  consolidate  the  direction  of  advertising  and  of 
other  forms  of  selling  in  the  hands  of  a  single  official. 
Under  present  ccMiditions,  however,  in  a  suggestive  plan 
of  sales  department  organization  it  seems  wise  to  make 
the  sales  manager  and  the  advertising  manager  co- 
ordinate in  authority  and  responsible  only  to  the  owner 
or  general  manager  of  the  business. 

66.  Credit  and  traffic  departments. — It  is  sometimes 
contended  that  the  credit  and  traffic  departments  are 
essential  parts  of  a  manufacturer's  selling  organization. 
The  nature  of  the  functions  of  these  departments,  how- 
ever, does  not  justify  this  contention.    Neither  of  them 
is  engaged  primarily  in  the  sale  of  goods,  the  one  pur- 
pose of  the  sales  department.     The  credit  man  helps 
to  guard  the  manufacturer's  profits  by  passing  upon 
the  advisability  of  accepting  sales  that  have  already 
been  made.     It  is  true  that  he  should  be  a  salesman, 
because  he  has  many  opportunities  to  inject  selling  talk 
into  his  letters  to  customers;  and  he  should  always  con- 
duct his  activities  with  a  view  to  advancing  the  sale 
of  goods  so  far  as  he  can  do  so  consistently  with  his 
specific  duties  to  his  employer.    His  main  purpose, 
however,  is  not  to  make  sales  but  to  pass  upon  those 
already  made,  and  for  that  reason  he  has  no  logical 
place  in  a  strictly  selling  organization. 

In  like  manner  the  traffic  manager  can  do  much  to 
assist  the  seUing  force.  By  his  knowledge  of  rates  and 
routes  he  can  make  it  possible  at  times  for  the  prod- 


76 


SELLING  AND  BUYING 


ucts  of  his  employer  to  be  sold  at  lower  delivered 
prices  than  the  goods  of  competitors,  and  in  his  rela- 
tions with  customers  he  can  do  much  to  increase  the 
prestige  of  the  house.  His  chief  duties,  however,  do 
not  begin  until  the  orders  have  been  actually  received. 
It  is  his  function  to  see  that  shipments  are  delivered  in 
the  shortest  possible  time  and  at  the  lowest  possible  rate. 
Accordingly  the  traffic  manager  is  logically  no  more 
subordinate  to  the  sales  manager  than  is  the  chief  ac- 
countant or  the  heads  of  any  of  the  other  non-selling 
departments  of  the  business. 

67.  Method  of  adapting  the  manufacturer's  selling 
organization  chart— The  manufacturer's  sales  organi- 
zation that  has  been  described  is  an  ideal  one.  It  is 
based  on  the  supposition  that  every  possible  means  of 
distribution  is  employed  in  marketing  the  product. 
This  condition  seldom  exists.  Few  manufacturers  sell 
to  jobbers,  retailers,  and  consumers  alike;  and  most 
of  them  use  only  a  few  of  the  possible  methods  of  reach- 
ing the  market  that  they  have  selected.  The  organiza- 
tion chart  can  be  readily  modified  to  suit  any  particu- 
lar business.  For  instance,  if  the  manufacturer  does 
not  sell  to  consumers  or  retailers,  as  is  the  case  with 
most  manufacturers  of  grocery  specialties,  the  only 
necessary  change  in  the  organization  is  the  elimination 
of  the  retail  stores,  the  salesmen  who  sell  to  consumers 
and  retailers,  and  the  machinery  of  the  mail-order  de- 
partment designed  to  reach  these  classes  of  customers. 
The  relation  between  the  remaining  distributing  factors 
is  unchanged.  If  a  producer  sells  only  to  retailers 
who  act  as  his  agents,  the  entire  retail  store  and 
mail-order  sections  of  the  chart  may  be  eliminated,  as 
well  as  the  salesmen  who  sell  to  jobbers  and  consumers. 
In  this  manner  the  chart  is  capable  of  innumerable 


MANUFACTURER'S  SELLING  ORGANIZATION        77 

I  variations  in  its  details.    Whatever  may  be  the  extent 

I  of  the  alteration,  however,  there  is  no  change  in  the 

creneral  principles  of  the  organization.     The  effective 

sales  organization  Is  always  based  on  the  idea  of  definite 

departmentation  and  graded  delegation  of  authority. 


CHAPTER  VII 

METHODS  OF  SECURING  CO-OPERATION  BETWEEN 
SELLING  AND  OTHER  DEPARTMENTS 

68.  Necesrity  of  inter-departmental  co-operation.— 
We  have  already  indicated  the  necessarily  close  rela- 
tion that  must  exist  between  the  sales  department  and 
all  the  other  departments  of  a  business.     The  sale  of 
goods  at  a  profit  is  the  ultimate  purpose  of  every  or- 
ganization,  whether  its  primary  purpose  is  the  produc- 
tioij^  of  such  goods,  or  whether  it  is  concerned  simply 
with  the  distribution  of  articles  that  are  produced  by 
others.    Accordingly  the  efficiency  of  the  sales  depart- 
ment IS  a  matter  of  great  importance  to  every  busi- 
ness  owner  or  manager.    This  efficiency  can  not  reach 
Its  highest  d  velopment  unless  every  department  co- 
operates with  the  selling  orgam'zation  in  order  to  bring 
about  the  most  economical  and  successful  administra- 
tion of  the  sellmg  activities.    The  intimate  relation  be- 
tween the  advertising  and  sales  departments  has  been 
frequently  referred  to.    Although  the  connection  is  not 
always  so  obvious,  there  is  a  similar  relation  between 
the  sales  department  and  the  departments  in  charge  of 
production,   transportation,   credit,    accounting,   office 
routme,  and  all  other  phases  of  the  activities  of  any 
business  establishment. 

The  development  of  co-operation  between  the  sell- 
ing and  other  departments  can  not  be  left  to  chance 
Lnless  an  organization  is  composed  of  exceptional  in- 
dividuals, It  seems  to  be  natural  for  many  of  the  em- 

78 


METHODS  OF  CO-OPERATION 


T9 


ployes  to  work  at  cross  purposes.  Each  department 
naturally  is  concerned  chiefly  with  its  own  interests; 
and  inter-departmental  jealousy  and  lack  of  co-opera- 
tion are  unfortunately  characteristic  of  many  estab- 
lisiiments,  even  when  their  organization  is  otherwise 
highly  developed  and  they  have  attained  a  large  meas- 
ure of  success. 

Three  things  are  influential  in  bringing  about  the 
necessary  co-operation  among  the  members  of  any  de- 
partment and  among  the  different  departments  in  a 
business.     They  are  as  follows: 

Tact 

Profit-sharing 

System 

69.  Use  of  tact  in  securing  co-operation. — The  prob- 
lem is  largely  one  of  human  nature,  and  wherever  this, 
factor  is  met,  the  solution  certainly  can  not  be  found 
by  a  resort  to  merely  mechanical  methods.  The  func- 
tion of  system  in  business  is  to  secure  the  greatest  re- 
sults with  the  least  expenditure  of  time  and  energy. 
But  no  system,  however  well  planned  it  may  be  or 
however  carefully  installed,  can  be  effective  in  accom- 
plishing its  purposes  unless  those  who  are  affected  by  it 
are  in  sympathy  with  it  and  are  willing  to  co-operate 
with  all  of  their  fellow  employes  who  are  concerned 
with  its  operation.  The  human  factor  must  always  be 
considered;  and  no  mechanical  means  will  ever  be  de- 
vised that  will  take  the  place  of  tact  in  the  equipment 
of  the  successful  business  man. 

Whatever  other  methods  may  be  employed  to  secure 
departmental  co-operation,  they  must  always  be  made 
effective  by  the  exercise  of  tact,    A  sales  manager  must 


HO 


SELLING  AND  BUYING 


ii 


i^ 


consider  each  of  his  suhordinates  as  an  individual  prob- 
lem. He  must  study  him,  learn  his  strength  and  weak- 
ness, discover  his  most  approachable  side — in  short,  he 
must  deal  with  him  as  a  man  and  not  as  a  machine.  In 
the  same  way,  the  executives  of  the  sales  department 
must  deal  with  the  other  members  of  the  office  and 
factorj'  organization.  They  must  be  courteous,  patient, 
open-minded,  and  with  a  regard  for  the  opinions  of 
others.  They  must  remember  that  while  they  may  gain 
their  point  by  mere  force  of  their  authority,  or  by  calling 
into  play  the  authority  of  the  general  manager  or  owner 
of  the  business,  every  act  of  this  sort  will  alienate  the 
support  of  their  subordinates  or  associates,  unless  the 
authority  is  exercised  tactfully  and  with  a  regard  for 
the  feelings  of  others.  Tactless  attempts  to  compel 
co-operation,  instead  of  solving  the  problem,  only  make 
its  ultimate  solution  more  difficult. 

It  is  obviously  impossible  to  give  practical  directions 
for  the  development  of  tactful  relations  within  and 
among  departments.  It  is  not  a  matter  to  be  consid- 
ered in  the  abstract,  like  organization  methods  or  office 
systems.  It  is  something  that  pertains  solely  to  the 
individual.  The  only  general  directions  concerning  it 
that  are  worth  anything  are  those  that  urge  the  general 
manager  to  eliminate  from  his  organization  any  individ- 
ual who  does  not  exercise  tact  in  his  dealings  with  his 
associates.  A  tactless  salesman  is  an  impossibility,  and 
a  tactless  sales  manager  does  any  business  more  harm 
than  good.  If  tact  is  displayed  in  the  direction  of  sales- 
men, it  will  also  usually  be  found  in  the  relation  of  the 
selling  officials  to  the  other  department  heads  in  the 
business.  If  it  is  nol  found  in  these  relations,  the  fault 
can  not  be  cured  by  any  revised  system  or  plan  of  re- 
organization.   The  only  cure  is  the  elimination  of  the 


METHODS  OF  CO-OPERATION 


81 


individual  who  is  incapable  of  working  in  harmony  with 
the  other  members  of  the  force. 

70.  Profit-sharing  to  induce  co-operation. — In  any 
lurjfe  business,  if  there  is  lack  of  co-operation  between 
the  departments,  it  is  often  due  to  the  fact  that  the  em- 
ployes think  more  of  the  interests  of  their  respective  de- 
partments than  of  the  business  as  a  whole.     Having  no 
direct  interest  in  the  profits  arising  from  the  successful 
conduct  of  the  enterprise,  each  employ^  is  likely  to 
think  that  what  he  conceives  to  be  the  advancement  of 
the  interests  of  his  department  is  the  sole  end  toward 
which  he  should  strive,  no  matter  how  adversely  such  so- 
called  advancement  may  affect  other  departments.     He 
frequently  fails  to  realize  that  any  real  departmental 
success  is  dependent  on  the  success  of  the  entire  busi- 
ness.    If  controversy  or  friction  arises  with  other  de- 
partments, he  may  be  more  concerned  with  proving  his 
own  department  in  the  right  than  with  the  ultimate  ef- 
fect of  the  controversy  upon  the  owner's  profits. 

Where  this  condition  exists,  one  method  of  removing 
the  difficulty  is  to  give  the  employes  a  share  in  the 
profits.  Profit-sharing,  with  this  purpose  in  view,  is 
l)ecoming  increasingly  popular  in  all  branches  of  indus- 
try. It  is  used  most  frequently  in  manufacturing  es- 
tablishments and  in  retail  stores,  but  wholesale  houses 
also  are  beginning  to  realize  its  possibilities  and  to  inau- 
gurate profit-sharing  in  some  form  among  their  em- 
ployes. Profit-sharing  is  a  generic  term  used  here  to 
refer  to  all  methods  by  which  employes  are  given  a 
financial  interest  in  the  business,  in  addition  to  their 
regular  remuneration.  It  may  be  in  the  form  of  a 
division  among  the  employes  of  a  certain  predeter- 
mined portion  of  the  profits;  it  may  be  in  the  form  of 
conditional   salaries   dependent   on   the   profits   made, 

1II-6 


8!2 


SELLING  AND  BUYING 


) 


ownership  of  stock  by  employes,  cash  bonuses  for  ex- 
ceptional results,  or  other  modifications  of  the  general 
principle. 

In  many  cases  profit-sharing  undoubtedly  increases 
co-operation  among  the  various  departments.  Theo- 
retically the  different  officials  and  minor  employes  will 
willingly  subordinate  their  individual  desire  and  in- 
clinations and  work  harmoniously  for  the  common  good 
if  that  course  will  be  to  their  immediate  financial  advan- 
tage. Practically  the  beneficial  results  are  not  always 
as  great  as  might  be  expected,  because  human  nature 
is  such  that  it  is  hard  for  any  individual  to  distinguish 
the  greater  good  from  his  own  immediate  interests,  and, 
even  when  this  is  possible,  a  small  share  in  increased 
profits  to  be  distributed  twelve  months  hence  is  likely  to 
be  of  less  importance  than  the  satisfaction  derived  from 
making  a  personal  point  in  a  controversy.  Despite  the 
practical  qualifications  of  the  theoretical  benefits  of 
profit-sharing,  however,  the  plan  works  well.  Particu- 
larly in  the  case  of  higher  officials  whose  share  in  the 
profits  is  large,  it  has  been  found  in  many  cases  to  in- 
crease materially  the  willingness  of  department  heads  to 
eo-operate  for  the  advancement  of  the  common  good. 

71.  Committee  system  as  an  aid  to  co-operation. — 
The  third  method  of  promoting  co-operation  between 
the  selling  and  other  departments  is  the  use  of  some  sys- 
tem whereby  the  managers  of  departments  are  forced  to 
confer  about  the  matters  that  concern  them  in  common. 
By  being  given  an  opportunity  to  express  their  own 
views  and  to  leam  at  first  hand  the  opinions  of  others 
who  are  equally  interested  in  the  matters  under  dis- 
« ussion,  and  by  being  given  a  large  measure  of  responsi- 
bility for  the  decisions  on  important  questions,  they  are 
likely  to  lose  their  narrow  departmental  points  of  view 


METHODS  OF  CO-OPERATION 


83 


and  to  think  more  of  the  interests  of  the  business  as  a 
whole. 

The  committee  system  is  one  of  the  best  methods  that 
lias  been  devised  for  securing  the  beneficial  results  of 
departmental  co-operation.  It  is  not  a  new  thing;  it 
has  been  advocated  and  practiced  successfully  for  sev- 
eral years  by  ma'iy  managers  of  industrial  plants.  It 
lias  been  proved  immensely  effective  in  securing  the  co- 
operation of  factory  foremen;  and  it  is  just  as 
effective  when  it  is  used  to  secure  the  co-opera- 
tion of  the  higher  employe.  An  important  reason 
for  the  lack  of  co-operation  is  the  frequent  failure  of  one 
department  manager  to  get  the  point  of  view  of  an- 
other— to  know  his  problems,  and  to  look  at  the  business 
from  the  standpoi^it  of  his  position.  If  the  two  depart- 
ment heads  can  be  brought  together  to  consider  frankly 
the  various  aspects  of  any  question  on  which  they  may 
hold  different  oi>inions,  they  are  very  likely  to  alter 
their  original  attitudes  and  to  reach  a  conclusion  that 
is  satisfactory  to  both.  In  many  organizations,  of 
course,  there  are  voluntary  conferences  of  this  sort,  and 
the  several  department  managers  are  glad  to  listen  to 
the  opinions  of  others  and  to  profit  by  the  general  dis- 
cussion. When  there  is  no  systematic  provision  for  con- 
ferences, however,  the  managers  are  too  often  unwilling 
to  go  into  them  voluntarily,  and  jealousy  and  lack  of 
intercourse  are  too  often  the  rule  instead  of  co-opera- 
tion and  mutual  helpfulness. 

The  committee  system  can  be  used  by  manufacturers, 
wholesalers,  and  retailers.  The  principles  under- 
lying its  successful  operation  are  the  same  in  all  cases, 
and  it  is  not  necessary,  therefore,  to  consider  its  applica- 
tion in  detail  to  each  of  these  three  classes  of  business. 
^Manufacturers'  organizations,  however,  have  probably 


84 


SELLING  AND  BUYING 


applied  it  most  effectively,  and  for  that  reason  we  shall 
present  its  principal  features  in  connection  with  such  an 
organization.  The  manufacturing  industry  that  we 
shall  consider  for  the  purpose  of  illustration  has  a  highly 
developed  sales  department.  The  territory  in  which  its 
products  are  sold  is  divided  into  three  divisions  with  a 
division  sales  manager  in  charge  of  each.  The  division 
sales  managers  all  make  their  headquarters  at  the  main 
office  of  the  company.  They  are  in  reality  assistant 
sales  managers,  co-ordinate  in  authority,  and  directly 
subordinate  to  the  general  sales  manager  of  the  organi- 
zation. In  this  company  the  advertising  department  is 
of  great  importance,  and  the  advertising  manager  is  not 
responsible  to  the  sales  manager,  but  is  equal  in  au- 
thority with  him.  Diagram  IV  on  page  85  illustrates 
the  application  of  the  committee  system  to  the  office 
organization  of  the  company. 

72.  Executive  committee. — In  general,  this  system  in- 
volves the  grouping  of  department  heads  into  a  series 
of  committees,  in  each  of  which  the  majority  vote,  on 
matters  brought  before  the  committee,  prevails  against 
the  opinion  of  any  dissenting  member.  The  highest  au- 
thority is  vested  in  the  executive  committee  of  the  cor- 
poration, which  is  composed  of  the  corporate  officers. 
As  is  frequently  the  case,  each  of  these  officers  has  a 
definite  function  in  the  active  affairs  of  the  company. 
The  president  is  the  active  executive  head  of  the  busi- 
ness, with  general  supervision  over  all  departments. 
The  vice-president  is  the  general  manager,  with  imme- 
diate control  over  the  productive  end  of  the  company's 
activities.  The  treasurer  is  the  superior  officer  of  the 
cashier,  auditor,  office -manager,  credit  man,  and  statisti- 
cian. The  secretary  is  the  general  sales  manager,  and 
the  assistant  secretary  is  the  advertising  manager.    'It 


86 


80 


SELLING  AND  BUYING 


is  evident,  therefore,  that  the  three  principal  depart- 
ments of  the  corporation — production,  marketing,  and 
the  office  organization — are  represented  on  the  execu- 
tive committee.  This  conmiittee  meets  daily.  Every 
action  of  any  of  the  other  committees  is  subject  to  its 
approval  or  veto.  If  a  matter  comes  to  the  executive 
conmiittee  after  favorable  action  by  the  advertising  com- 
mittee, for  example,  it  is  naturally  defended  in  the  ex- 
ecutive committee  by  the  advertising  manager;  and  if  it 
comes  from  the  factory  committee,  it  usually  is  pre- 
sented by  the  general  manager.  In  like  manner,  the 
sales  manager  ordinarily  represents  the  sales  committee 
in  matters  that  go  to  the  executive  committee,  and  the 
conclusions  of  the  office  committee  are  presented  by  the 
treasurer. 

The  executive  committee  may  do  one  of  three  things 
with  any  matter  that  has  been  approved  by  a  subordi- 
nate committee:  it  may  approve  the  recommendation 
and  order  it  to  be  put  into  effect  immediately;  it  may 
disapprove  it  and  order  it  back  to  the  subordinate  com- 
mittee for  further  consideration;  or  it  may  finally  veto 
the  recommendation.  Of  course,  the  executive  com- 
mittee also  originates  many  measures.  It  is  the  govern- 
ing body  of  the  corporation,  and  it  is  responsible  only 
to  the  directors  and  ultimately  to  the  stockholders. 

Often  the  executive  committee  of  a  corporation  has 
only  perfunctory  duties.  This  is  usually  the  case  when 
many  of  the  officers  are  not  active  in  the  direction  of  the 
company's  affairs.  When  the  officers  do  hold  responsi- 
ble positions  in  the  organization,  however,  the  executive 
committee  as  an  active  governing  body  offers  extraordi- 
nary opportunities  for  the  development  of  co-operation 
among  the  officers.  Even  when  one  or  two  officers  hold 
most  of  the  stock  and  are  unwilling  to  permit  important 


METHODS  OF  CO-OPERATION 


87 


matters  to  be  decided  finally  by  a  majority  vote  of  the 
executive  committee,  it  is  entirely  feasible  to  require  the 
committee  to  pass  upon  all  matters  affecting  the  busi- 
ness as  a  whole.  The  president  may  reserve  the  power 
to  veto  the  committee  action,  but  the  free  interchange  of 
ideas  in  the  committee  meetings  will  be  productive  of 
co-operative  effort  and  a  common  sympathy  with  the 
view  points  of  the  various  departments,  which  can  be 
secured  in  no  other  way. 

73.  Factory  committee. — In  the  organization  that 
we  are  considering,  the  factory  committee  is  composed 
of  the  general  manager,  the  factory  superintendent,  and 
the  general  sales  manager.  The  organization  of  this 
committee,  like  that  of  all  the  other  conmiittees,  may 
vary  in  individual  cases,  but  it  is  of  the  greatest  impor- 
tance that  its  membership  should  always  include  a  rep- 
resentative of  the  sales  department.  All  matters  af- 
fecting out-put  should  be  considered  from  the  selling 
standpoint  as  well  as  from  that  of  the  factory  engineer. 
The  presence  of  the  sales  manager  on  the  committee 
gives  the  factory  officials  an  opportunity  of  securing 
the  seUing  point  of  view,  and  is  largely  instrumental  in 
eliminating  the  unfortunate  lack  of  sympathy  between 
the  production  and  sales  departments  that  is  altogether 
too  common  in  manufacturing  industries. 

In  the  case  of  most  factories  there  are  very  few  weeks 
during  the  year  in  which  the  orders  and  the  out-put  are 
exactly  equal.  In  dull  times  the  warehouses  fill  up 
with  the  product,  and  the  factory  thinks  the  sales  depart- 
ment is  not  doing  its  utmost  to  take  care  of  the  produc- 
tion. When  business  is  exceptionally  good,  the  sales 
department  is  often  unreasonable  in  its  demands  upon 
the  factoiy  for  increased  out-put  far  beyond  the  normal 
or  possible  rate.     A  factory  committee,  on  which  there 


88 


SELLING  AND  BUYING 


i 
I 


IS  a  representative  of  the  sales  department,  obviates  this 
rmituul  misunderstanding  and  enables  each  of  the  two 
chief  branches  of  the  business  to  realize  that  the  other  is 
domg  its  best  at  all  times. 

74.  Saks  committee,— The  sales  committee  is  com- 
posed of  the  general  sales  manager,  the  three  division 
sales  managers,  and  the  advertising  manager.  In  this 
particular  organization  no  departments  are  represented 
on  the  sales  committee  except  those  that  have  to  do 
directly  with  distribution.  The  same  result  that  would 
be  secured  by  representation  of  other  departments  on 
the  sales  committee  is  realized  by  the  presence  of  repre- 
sentatives of  the  sales  department  on  aU  the  other  im- 
portant committees. 

The  working  of  the  principle  of  majority  rule  is  well 
illustrated  in  the  case  of  the  sales  committee.  Theoreti- 
cally the  three  division  sales  managers  are  subordinate 
to  the  general  sales  manager.  Nevertheless  all  four  of 
these  officials  meet  in  the  committee  room  on  an  abso- 
lutely equal  footing.  Suppose,  for  example,  that  the 
western  division  sales  manager  wants  a  special  price  on 
some  product  for  a  certain  group  of  towns  in  his  division. 
The  eastern  and  central  division  managers  agree  with 
him  that  this  price  is  advisable.  They  can  not,  how- 
ever, convince  the  general  sales  manager  that  they  are 
right.  When  the  matter  is  put  to  vote,  it  may  have  the 
approval  of  all  the  members  of  the  committee  except 
the  general  sales  manager.  Despite  his  disapproval,  it 
goes  to  the  executive  committee  for  final  action,  bearing 
the  formal  approval  of  the  sales  committee. 

In  the  case  that  we  are  considering,  the  sales  com- 
mittee meets  daily,  and  every  selling  subject,  unless  it  is 
of  a  merely  routine  character,  is  brought  up  before  all 
the  members  for  discussion.     The  minutes  of  their  meet- 


METHODS  OF  CO-OPERATION 


89 


ings  are  read  by  the  executive  committee,  and  the  recom- 
mendations of  the  sales  committee  are  either  approved 
or  vetoed  or  sent  back  to  the  committee  for  further  con- 
sideration. If  the  sales  committee  recommends  ^  cam- 
l)aign  that  involves  advertising,  the  character  and  ad- 
visability of  the  advertising  must  be  passed  upon  by  the 
advertising  committee  before  the  matter  goes  before  the 
executive  conunittee. 

75.  Advertising  committee. — ^The  advertismg  com- 
mittee is  composed  of  the  advertising  manager,  the 
treasurer,  and  the  general  sales  manager.  This  com- 
mittee initiates  advertising  ideas,  and  acts  in  general  as 
an  advisory  council  for  the  advertising  manager,  pass- 
ing upon  his  work,  and  aiding  him  in  every  way  possi- 
ble. Its  important  recommendations  must  be  passed 
upon  by  the  sales  committee  before  they  go  to  the  ex- 
ecutive committee.  In  matters  of  advertising  details, 
however,  it  takes  action  without  reference  to  the  sales 
committee,  and  subject  only  to  the  approval  of  the  exec- 
utive conunittee. 

76.  Office  committee. — The  office  committee  is  made 
up  of  the  department  heads  who  have  supervision  over 
the  routine  of  the  office — entering  of  orders,  accounting, 
credit  matters,  correspondence,  billing,  etc.  In  these 
activities  the  unfortunate  results  of  the  lack  of  system 
and  co-operation  are  most  frequently  evident,  and  it  is 
particularly  important,  therefore,  that  the  office  com- 
mittee be  carefully  organized  and  that  its  members  co- 
operate with  each  other  in  all  matters  that  affect  them 
in  common.  The  sales  department  is  represented  on 
this  committee  by  one  of  the  division  sales  managers,  be- 
cause of  the  interest  of  the  sales  department  in  seeing 
that  the  orders,  inquiries,  and  complaints  of  its  customers 
are  given  the  careful  attention  that  they  deserve.     This 


90 


SELLING  AND  BUYING 


H 


representation  is  also  helpful  because  of  the  necessity 
of  harmonizing  the  routine  work  of  the  sales  departmen 
with  the  office  system  of  the  rest  of  the  organization. 

77.  Variations  in  system. — In  addition  to  the  com 
mittees  that  have  been  described,  many  corporation 
have  one  inclusive  body  that  may  be  called  the  committe< 
of  principal  employes.  It  is  composed  of  all  the  de- 
partment heads  in  the  business.  Its  meetings  may  U 
irregular,  but  it  is  a  most  effective  means  of  getting  to 
gether  the  chief  members  of  the  organization  and  instill- 
ing into  them  the  idea  that  individual  success  can  b< 
achieved  only  by  co-operative  effort  toward  the  success 
of  the  business  as  a  whole. 

This  system  of  committee  organization  is  suggestive 
rather  than  typical.  The  personnel  and  duties  of  the 
various  committees  differ  greatly  in  the  different  organ- 
izations in  which  the  committee  system  is  used  to  promote 
co-operation.  In  every  organization  the  sales  depart- 
ment may  not  be  given  the  commanding  position  that  it 
occupies  in  the  case  that  has  been  described.  Its  im- 
portance, however,  justifies  this  position.  There  is 
scarcely  any  activity  of  a  business  that  does  not  have 
some  effect  upon  the  sale  of  goods,  and  for  that  reason 
a  representative  of  the  sales  department  should  hold 
membership  in  each  of  the  important  committees. 

78.  Practical  results  of  committee  system. — One  ob- 
jection that  is  sometimes  urged  against  the  committee 
method  of  s'icuring  departmental  co-operation  is  that  its 
operation  is  more  likely  to  result  in  profitless  discus- 
sions than  in  faciUtating  the  transaction  of  business. 
It  is  true  that  when  men  are  given  the  opportunity  to 
air  their  -news  before  others,  there  are  always  certain 
individuals  who  take  delight  in  talking  rather  than  in 
acting,  and  who  endeavor  to  secure  personal  prestige  in 


METHODS  OF  CO-OPERATION 


Dl 


wordy  debates.  It  is  the  duty  of  the  chairman  of  each 
committee,  however,  to  see  that  the  discussions  are  perti- 
nent and  that  they  are  directed  along  the  most  profitable 
lines.  When  the  conmiittee  meetings  are  properly  con- 
trolled, the  advantages  of  the  system  far  outweigh  its 
possible  disadvantages.  The  committee  system  is  not 
always  necessary  or  advisable  in  a  small  organization 
in  which  the  department  heads  naturally  come  into  suf- 
ficient daily  contact  with  each  other  without  enforced 
attendance  at  committee  meetings.  But  when  the 
organization  is  of  a  character  that  precludes  the  possi- 
bility of  natural  daily  contact,  the  committee  system  has 
been  proved  to  be  of  immense  value  in  the  devetopment 
of  departmental  co-operation. 


CHAPTER  VIII 


THE    SALES    MANAGER 

79.  Purpose  of  selling  campaign.— The  selling  cam- 
paign is  simply  the  practical  utilization  of  the  selling 
methods  that  have  been  adopted  and  the  selling  organi- 
zation that  has  been  developed.  The  problem  of  the 
campaign,  therefore,  is  the  problem  of  how  to  make  the 
most  effective  use  of  marketing  methods  and  sales  de- 
partment organization.  One  factor  in  the  solution  of  this 
problem  has  already  been  considered — the  development 
of  methods  of  insuring  inter-departmental  co-operation 
so  that  the  efforts  of  the  selling  force  will  not  be  nullified 
by  the  conflicting  purposes  of  the  other  departments. 
The  other  and  the  more  important  factor  in  the  solution 
of  the  problem  is  the  development  of  the  sales  depart- 
ment itself  to  the  highest  possible  degree  of  efficiency. 

In  this  development  the  fundamental  principles  are 
always  the  same,  whether  the  problem  is  considered  with 
particular  reference  to  the  activities  of  a  retailer,  a  job- 
ber, or  a  manufacturer.  Of  these  three  classes  the  re- 
tailer has  the  least  difficult  problem,  because  of  his  com- 
pact organization  and  his  usually  localized  trade.  The 
chief  problems  that  he  has  to  solve  in  the  development 
of  the  efficiency  of  his  selling  organization  are  largely 
included  in  the  problems  of  the  jobber  and  the  manu- 
facturer, and,  in  addition,  the  jobber  and  the  manu- 
facturer have  peculiar  problems  of  their  own  that  the 
retailer  ordinarily  does  not  have  to  meet.  In  like  man- 
ner, the  problems  of  the  jobber  are  included  in  those  of 

92 


THE    SALES    MANAGER 


96 


the  manufacturer,  and,  in  addition,  the  manufacturer 
with  a  wide  distribution  of  his  products  must  solve  cer- 
tain problems  that  are  not  usually  encountered  by  the 
utlier  classes  of  distributers. 

Because  of  this  inclusive  nature  of  the  problems  of  the 
manufacturer  in  developing  the  efficiency  of  his  selling 
organization,  our  consideration  of  the  selling  campaign 
will  have  particular  reference  to  the  situation  of  a  manu- 
facturer whose  products  have  national  distribution  and 
whose  methods  are  typical  of  the  activities  of  modern 
large-scale  manufacturing  industries.  It  should  be 
i)()rne  in  mind,  however,  throughout  the  discussion,  that 
many  of  the  manufacturer's  methods  are  applicable  as 
well  to  the  solution  of  the  problems  of  retailers  and 
jobbers,  and  that  the  fundamental  principles  of  selling 
efficiency  are  universal  throughout  the  entire  merchan- 
dising field. 

80.  Two  chief  factors  in  selling  campaign. — ^We 
have  seen  that  the  many  variations  in  sales  department 
organization  make  it  impossible  to  consider  any  par- 
ticular organization  in  all  its  details  as  typical  of  any 
class  of  distributers.  There  is  one  feature  of  selling 
organization,  however,  that  is  so  general  that  it  can 
fairly  be  considered  as  typical.  This  feature  is  the  su- 
penision  of  a  number  of  salesmen  by  some  one  whose 
duties  are  those  of  a  sales  manager.  The  supervisor  of 
salesmen  may  be  the  proprietor,  the  general  manager, 
the  merchandise  manager,  the  superintendent  of  sales- 
men, or  he  may  be  an  assistant  to  any  of  these  officials. 
His  title  and  general  functions  are  inmiaterial.  If  his 
duties  include  the  supervision  of  salesmen,  however,  he 
is  properly  a  sales  manager  in  the  sense  in  which  that 
term  is  usually  understood,  and  he  is  to  be  so  consid- 
ered in  any  discussion  of  selling  campaigns.     This  sug- 


<.)k 


SELLING  ANlJ  BUYING 


gested  elementary  selling  organizatiiNi  does  not  apply  to 
the  case  of  the  manufacturer  or  dealer  who  reaches  his 
market  exclusively  through  the  mail-order  method  of 
distribution.  The  strictly  mail-order  houses,  however, 
are  relatively  few  in  number,  and  in  their  case  the  effi- 
ciency of  the  selling  organization  is  synonymous  with 
the  efficiency  of  the  advertising  department.  Accord- 
ingly their  problems  are  not  within  the  scope  of  our 
present  discussion. 

Because  the  common  form  of  selling  organization  is 
that  in  which  a  sales  manager  directs  the  work  of  several 
salesmen,  we  shall  consider  the  problem  of  developing 
sales  department  efficiency  first  from  the  standpoint  of 
the  sales  manager,  and  then  from  the  standpoint  of  the 
salesmen  themselves. 

81.  Qualifications  of  a  sales  manager. — There  are  four 
general  qualifications  of  a  successful  sales  manager — he 
must  have  all  the  qualifications  of  a  successful  salesman, 
he  should  have  had  actual  experience  in  selling,  he  must 
possess  executive  ability  of  a  high  order,  and  he  must 
have  complete  knowledge  of  the  business  and  be  able  to 
use  that  knowledge  successfully  in  promoting  the  effi- 
ciency of  the  selling  organization. 

There  is  an  established  principle,  which  is  only  empha- 
sized by  the  few  exceptions  to  it,  that  no  one  can  suc- 
cessfully direct  others  in  any  activity  in  which  he  him- 
self does  not  excel.  Certainly  the  most  successful  sales 
managers  are  drawn  from  the  ranks  of  successful  sales- 
men, and  it  is  perfectly  proper  that  this  should  be  so, 
for  two  reasons.  In  the  first  place  no  executive  can 
fully  appreciate  the  problems  of  personal  salesmanship 
or  be  able  to  give  assistance  in  their  solution  unless  he 
has  faced  the  same  situations  that  the  salesmen  have  to 
face  in  their  daily  work.    In  the  second  place,  even  if  it 


THK    SAl.l'.S    MANACIKU 


95 


were  i>oMible  for  a  sales  manager  to  secure  a  thorough 
knowledge  of  salesmanship  without  any  actual  expe- 
Hence  in^he  field,  he  would  have  difficulty  m  msp.rmg 
confidence  in  his  ability  among  the  members  of  the  sell- 
ing force  if  they  did  not  know  that  his  instructions  were 
baL  upon  wide  experience  and  an  intimate  knowledge 
of  the  details  of  their  activities.     The  qualifications  of  a 
successful  sales  manager  that  are  ^^^f ^^^J^" 
nualities  of  any  successful  salesman  will  be  ~n«  fered 
„  a  subsequent  chapter.     For  the  present  we  shall  con- 
sider  only  those  qualifications  that  d.fferentjate  hmi 
from  the  salesmen  who  have  not  managerial  ability. 
These  are,  in  general,  executive  ability  and  a  detailed 
knowledge  of  the  business.     It  is  by  developing  these 
qualities  to  the  utmost  that  he  can  be  of  the  greatest  serv- 
iee  in  increasing  the  efficiency  of  the  selling  organiza- 

*'°To  the  extent  that  the  sales  manager  has  a  part  in  the 
determination  of  policies  and  the  development  of  plans 
for  the  general  advancement  of  the  business,  he  must 
have  the  qualities  that  are  essential  in  any  executive  of- 
ficer     He  must  be  broad-minded,   unaginative,   tar- 
sighied.  shrewd,  logical,  and  determined.     We  are  not 
so  much  concerned  with  this  phase  of  his  activities  how- 
ever, as  with  his  control  over  the  members  of  the  selling 
force.    In  his  capacity  of  director  of  salesmen  he  must 
endeavor  to  reach  the  maximum  efficiency  m  each  of  the 
three  following  classes  of  his  general  duties: 

1.  Selection  of  salesmen 

2.  Training  of  salesmen 

8.  Supervision  of  salesmen 

82.  Sekction  of  saUsmen.-Atter  the  selection  of 
selling  methods  and  the  determination  upon  a  plan  of 


96 


SELLING  AND  BUYING 


sales  department  organization,  the  first  executive  duty 
of  a  sales  manager  is  the  selection  of  his  selling  force. 
Success  in  this  depends  on  a  knowledge  of  human  na- 
ture.   JSIany  sales  managers  are  unable  to  analyze  their 
reasons  for  the  acceptance  or  rejection  of  a  candidate  for 
a  position  on  their  force;  they  apparently  decide  for  or 
against  a  man  by  whim,  but  if  they  are  fortunate  in 
their  selections,  they  unconsciously  apply  their  knowl- 
edge of  what  a  salesman  must  and  must  not  be.     Be- 
cause a  knowledge  of  human  nature  is  the  most  impor- 
tant factor  in  determining  the  fitness  of  an  applicant  for 
a  position  as  salesman,  it  is  impossible  to  lay  down  rules 
for  the  guidance  of  the  sales  manager  in  this  difficult 
field  of  his  activities.     There  are,  however,  a  number  of 
more  or  less  mechanical  means  of  finding  out  certain  im- 
portant things  about  an  applicant,  and  these  the  sales 
manager  can  use  to  determine  the  advisability  of  grant- 
ing a  personal  interview  or  to  assist  him  in  "sizing  up" 
the  candidate  who  may  have  made  his  application  in 
person. 

83.  System  as  an  aid  in  selection. — ^Every  business 
house  that  has  a  large  selling  organization  is  constantly 
receiving  applications  from  people  who  want  to  enter 
its  employ  as  salesmen.  The  number  of  these  applica- 
tions necessitates  the  adoption  of  some  system  to  insure 
the  promising  candidates'  being  given  a  chance  to  dem- 
onstrate tlieir  ability  and  to  weed  out  those  whose  per- 
sonalities or  records  do  not  entitle  them  to  further  con- 
sideration. INIost  large  houses  have  a  printed  foi-m  of 
application  which  every  applicant  for  a  selling  position  is 
required  to  fill  out,  usually  before  an  interview  is 
granted.  The  application  form  may  require  the  ap- 
plicant to  give  such  items  of  information  as  the  fol- 
lowing: 


THE    SALES    MANAGER 


97 


Name. 

Address. 

Age. 

Married  or  single? 

Name,  address,  and  business  of  present  employer. 

Capacity  in  which  applicant  is  employed. 

Present  salary  or  yearly  commissions. 

Reason  for  wishing  to  leave  present  employment. 

Is  applicant  willing  to  have  present  employer  communicated 

with? 
Territory  in  which  applicant  has  had  selling  experience. 
Has  he  sold  goods  to  consumers,  retailers,  or  jobbers? 
Is  any  particular  territory  desired? 
Will  any  other  territory  be  considered? 
When  can  applicant  begin  work? 
Does  he  use  intoxicating  liquor? 


In  addition  to  information  of  the  above  character,  the 
candidate  is  usually  required  to  give  a  full  history  of  his 
past  business  connections.  He  may  be  asked  to  give 
the  following  data  about  each  position  he  has  held :  exact 
dates  covering  the  period  of  employroent ;  name,  ad- 
dress, and  business  of  employer,  and  capacity  in  which 
the  applicant  served ;  name  and  present  address,  if  it  can 
be  given,  of  his  immediate  superior  officer;  reason  for 
leaving  the  position.  The  applicant  is  also  asked  to 
give  the  names  and  addresses  of  several  responsible  in- 
dividuals who  are  in  a  position  to  give  information  re- 
garding his  character  and  general  fitness  for  the  position 
for  which  he  is  applying.  When  an  application  form 
has  been  filled  out,  it  comes  to  the  attention  of  the  sales 
manager  or  his  assistant.  If  the  experience  of  the  ap- 
l)licant  makes  further  consideration  advisable,  and  if 
his  answers  to  the  questions  are  satisfactory,  letters  are 
then  sent  to  his  personal  references  and  to  as  many  of 

III— 7 


98 


SELLING  AND  BUYING 


his  former  employers  as  it  may  seem  necessary  to  com- 
municate with.  Printed  forms  are  sometimes  r.sed  for 
this  purpose,  with  definite  questions  and  spaces  for 
answers.  When  this  is  done,  the  questions  may  be  of 
the  following  nature : 

How  long  have  you  known  the  applicant? 

Are  you  related  to  him  in  any  way? 

Has  he  worked  under  your  supervision,  and,  if  so,  in  what 
capacity? 

Were  his  duties  satisfactorily  performed? 

Is  he  honest  — —  energetic has  he  initiative does 

he  obey  orders? 

Have  you  ever  heard  of  his  using  intoxicating  liquors  to 
excess  ? 

Do  you  consider  him  fully  qualified  for  a  position  as  sales- 
man with  this  house? 

Please  give  any  further  information  concerning  the  applicant 
that  may  assist  us  to  determine  his  fitness  for  our  work. 

When  replies  are  received  from  all  the  references, 
they  are  attached  to  the  original  application  form,  and 
the  entire  file  once  more  comes  to  the  attention  of  the 
sales  manager,  who  must  determine  whether  the  appli- 
cant is  to  receive  fuither  consideration.  If  there  is  any- 
thing unsatisfactory  about  the  applicant's  character  or 
record,  he  is  usually  advised  that  the  house  has  no  posi- 
tion that  they  could  offer  for  his  consideration.  If  his 
papers  are  satisfactory,  one  of  two  things  may  happen. 
There  may  be  no  vacant  position  at  the  time,  and  in  that 
event  he  is  so  informed,  but  he  is  also  told  that  his  appli- 
cation has  been  favorably  considered,  that  it  will  be 
placed  on  file,  and  that  if  a  suitable  opening  develops,  it 
will  be  brought  to  his  attention  at  the  proper  time.  In 
the  event  that  a  position  is  vacant  when  the  application 


THE    SALES    MANAGER 


99 


is  received,  the  candidate  whose  papers  have  made  a 
favorable  impression  is  ahnost  invariably  requested  to 
call  for  a  personal  interview. 

The  written  statements  of  the  candidate  regarding  his 
own  qualifications,  and  the  statements  <  l  those  with 
whom  he  has  had  business  and  personal  relations,  are 
important  and  helpful  in  assisting  the  sales  manager  to 
reach  a  decision  regarding  his  fitness,  but  they  are  ordi- 
narily not  to  be  relied  upon  exclusively  in  determining 
his  availability  for  an  important  position.  Sale^sman- 
ship  must  always  be  largely  a  matter  of  personality,  and 
j)ersonality  is  something  that  most  sales  managers  insist 
upon  judging  for  themselves. 

84.  Personal  interview. — In  the  personal  interview 
the  sales  manager  can  not  rely  on  rules  or  mechanical 
means  for  judging  the  candidate's  fitness.  The  strength 
and  weakness  of  the  applicant  must  be  brought  out  by 
skillful  questioning,  and  the  main  reliance  of  the  sales 
manager  must  be  upon  his  ability  to  judge  human  na- 
ture— an  ability  which  is  so  large  a  part  of  the  equip- 
ment of  every  successful  executive.  As  far  as  possible 
he  must  ascertain  whether  th».  candidate  possesses  the 
(jualifications  essential  to  successful  salesmanship.  These 
are  to  be  considered  in  a  subsequent  chapter.  Some  of 
them  can  not  be  discovered  in  an  interview  and  are  dis- 
])layed  only  in  the  actual  work  of  the  salesman,  while 
the  presence  or  absence  of  others  can  be  discerned  by  the 
experienced  sales  manager  in  his  conversation  with  the 
Jipplicant.  What  may  be  termed  the  external  charac- 
teristics that  may  enter  into  a  manager's  judgment  of  a 
candidate  for  a  selling  position  are  noted  in  the  follow- 
ing sections. 

85.  Appearance. — There  are  two  factors  in  appear- 
ance— clothes  and  physical  characteristics.     It  is  said 


100 


SELLING  AND  BUYING 


that  salesmen  as  a  class  are  better  dressed  than  any  other 
group  of  business  men.  They  have  to  be;  their  busi- 
ness demands  it.  They  are  constantly  trying  to  in- 
fluence others.  When  a  sale  must  be  effected  in  a  short 
time  or  not  at  all,  the  influence  of  the  salesman  depends 
partly  on  the  first  impression  that  the  buyer  receives  of 
him,  and  clothes  are  an  exceedingly  important  factor  in 
first  impressions.  Then,  too,  the  buyer  unconsciously 
judges  the  principal  by  his  representative.  Good 
clothes  indicate  prosperity,  and  the  employer  certainly 
wants  his  representatives  to  create  the  impression  that 
the  business  is  prosperous.  For  these  and  other  reasons, 
a  shabby  salesman  is  an  anomaly.  If  a  salesman  ap- 
preciates the  relation  between  good  clothes  and  success 
in  his  calling,  it  will  be  apparent  to  the  sales  manager 
when  he  interviews  the  applicant ;  and  if  a  man  does  not 
present  a  neat  and  attractive  appearance  at  a  time  so  im- 
portant as  when  applying  for  a  position,  he  certainly 
will  not  do  so  when  he  is  out  "on  the  road."  The  sec- 
ond factor  in  appearance  is  physical  characteristics. 
Ill-health,  intemperance,  over-indulgence  in  any  form, 
and  the  other  physical  characteristics  that  are  fatal  to 
success  in  salesmanship,  leave  their  imprint  upon  the 
features  and  general  appearance  of  a  man.  The  sales 
manager  should  know  the  sure  signs  of  such  character- 
istics, and  he  should  use  the  personal  interview  to  deter- 
mine whether  or  not  they  are  present  in  the  applicant. 

86.  Conversational  ahility. — A  salesman  must  be  able 
to  express  his  ideas  tersely  and  convincingly.  If  an 
applicant  for  a  selling  position  is  not  able  to  sell  bis  own 
services  by  his  "selling  talk,"  he  ought  not  to  be  trusted 
to  sell  merchandise. 

87.  Force. — General  information  and  intelligence. — 
A  successful  salesman  must  be  forceful,  and  able  to  im- 


THE    SALES    MANAGER 


101 


press  the  customer  by  his  magnetism.  This  is  a  quahty 
that  can  be  readily  ascertained  in  a  personal  mterview. 
The  sales  manager  should  direct  the  conversation  into  a 
variety  of  channels  to  the  end  that  he  may  ascertain  the 
applicant's  breadth  of  view.  The  salesman  who  knows 
Ills  line  and  nothing  more  is  not  a  high-grade  man.  The 
most  successful  salesman  is  the  one  who  is  capable  of  ap- 
proaching a  customer  from  his  "blind  side"— that  is, 
gaining  a  customer's  confidence  by  showing  an  intelli- 
gent interest  in  that  which  particularly  interests  him. 


CHAPTER  IX 


METHODS  OF  TRAINING  SALESMEN 


88.  Training  of  salesmen. — After  the  salesmen  have 
been  selected,  they  must  be  trained  in  the  methods  that 
the  sales  manager  wishes  them  to  use.  The  training  of 
salesmen  is  the  second  important  branch  of  a  sales 
manager's  duties  in  which  he  must  perfect  himself  in 
order  to  raise  the  efficiency  of  the  sales  department  to 
the  highest  possible  point.  This  training  varies  widely 
in  different  cases.  The  man  who  has  had  successful 
selling  experience  does  not  need  the  elementary  training 
in  the  principles  of  salesmanship  that  the  novice  re- 
quires. Likewise  if  the  article  to  be  sold  is  simple  in 
construction  and  use,  the  necessary  familiarity  with  its 
iselling  points  and  their  proper  presentation  can  be  ac- 
quired more  easily  and  quickly  than  would  be  possible 
if  the  article  was  more  complicated  and  difficult  of  pres- 
entation. For  instance,  the  average  salesman  with 
selling  experience  would  require  less  training  to  enable 
him  to  sell  laundry  soap  than  to  sell  such  a  complicated 
piece  of  mechanism  as  an  adding-machine. 

Then  too  there  are  wide  variations  in  the  degree  to 
which  sales  managers  realize  the  possibilities  of  training 
for  their  selling  force.  There  are  still  some  sales  mana- 
gers who  think  that  the  only  equipment  a  new  salesman 
needs  is  "a  sample  case,  a  route  list,  and  the  parting  in- 
junction to  keep  down  his  expense  account,"  as  some 
one  has  aptly  expressed  it.  It  is  needless  to  say  that 
this  method  is  not  the  one  that  makes  for  the  greatest 

102 


METHODS  OF  TRAINING  SALESMEN  103 

efficiency  in  the  selling  organization.  The  modern 
method  is  to  train  the  machinery  salesman,  for  example, 
as  carefully  as  the  man  who  makes  the  machines.  Com- 
petition has  become  so  severe  in  all  lines,  advertising  has 
so  generally  educated  the  public  with  respect  to  proc- 
esses, prices,  and  quality,  that  goods  can  no  longer  be 
sold  simply  on  the  personality  of  the  salesman.  Special 
training  for  his  work  is  now  generally  recognized  as  be- 
ing necessary. 

In  order  to  present  all  the  possible  methods  of  train- 
ing salesmen,  we  shall  consider  a  program  that  is  de- 
signed to  give  to  a  man  who  has  not  had  any  selling 
experience,  but  who  has  the  necessary  natural  qualifica- 
tions, the  training  that  is  needed  to  enable  him,  with 
reasonable  hope  of  success,  to  undertake  the  sale  of  an 
article  that  requires  extensive  study  and  thorough  knowl- 
edge on  the  part  of  the  salesman.  It  is  the  duty  of  the 
sales  manager  to  provide  this  training,  either  in  person 
or  by  the  aid  of  assistants,  and  upon  the  success  of  his 
efforts  the  efficiency  of  the  selling  organization  will 
largely  depend.  The  complete  training  that  is  required 
in  the  case  to  which  reference  has  been  made,  may  be 
divided  into  three  parts: 

1.  Training  in  principles  of  salesmanship. 

2.  Training  in  construction  and  uses  of  the  article  to 

be  sold. 

3.  Training  in  special  selling  methods  that  are  pecul- 
iarly applicable  to  the  article. 

89.  Training  in  principles  of  salesmanship. — Sales- 
manship is  as  old  as  the  human  need  for  acquiring  some- 
thing possessed  by  another.  We  do  not  know  at  what 
period  in  the  progress  of  the  race  each  individual  or  fam- 
ily ceased  to  be  wholy  independent  of  others,  but  it  is 
certain  that  barter  or  exchange  is  one  of  the  oldest  of 


104 


SELLING  AND  BUYING 


human  activities.  There  is,  therefore,  something  that 
might  be  called  a  trading  instinct  innate  in  almost  every 
one.  Until  a  comparatively  few  years  ago  it  was  con- 
tended that  if  this  so-called  selling  instinct  was  suffi- 
ciently strong  in  a  man,  he  could  become  a  good  sales- 
man witli  no  other  training  than  that  obtained  in  the 
school  of  experience ;  and  that  no  one  else  could  hope  for 
success  in  selling.  The  opponents  of  the  modern  idea 
that  there  is  a  science  of  salesmanship  maintained  that 
"a  salesman  is  born  and  not  made."  They  pointed  out 
that  the  world's  goods  had  been  sold  for  many  centuries 
without  any  attempt  at  scientific  selling  education,  and 
held  that  this  was  sufficient  proof  of  the  futility  of  in- 
troducing any  innovations  in  a  world-old  vocation. 

But  even  though  a  man  may  be  born  with  a  certain 
tendency,  it  does  not  follow  that  he  can  not  develop  his 
natural  bent  by  proper  schooling.  This  is  the  position 
of  the  advocates  of  scientific  selling.  They  admit  that 
success  in  salesmanship  depends  partly  on  the  posses- 
sion of  certain  natural  endowments,  but  they  insist 
rightly  that  it  also  depends,  and  to  a  far  greater  extent, 
on  the  degree  to  which  these  endowments  are  developed. 
This  development  may  come  through  experience  alone, 
or  it  may  come  throuc^h  training  i^receding  the  expe- 
rience. Formerly  experience  was  the  only  school  of 
salesmanship.  Its  advocates  tried  to  prove  its  efficiency 
by  pointing  to  the  success  of  its  pupils.  It  has  never 
been  proved,  however,  that  any  salesman,  no  matter  how 
successful,  could  not  have  been  more  successful  if  he  had 
had  the  advantage  of  special  training  in  his  profession. 

The  old  method  of  leaving  every  salesman  to  find 
himself  without  assistance  from  others  was  tolerable  in 
a  day  when  competition  was  not  as  fierce  as  it  is  now. 
It  is  intolerable  under  present  conditions,  because  it  is 


METHODS  OF  TRAINING  SALESMEN  105 

distinctly  wasteful.  An  inexperienced,  untrained  sales- 
man is  bound  to  make  mistakes  that  are  costly  for  his 
employer.  If  some  of  these  mistakes*  can  be  avoided 
by  giving  him  training  in  the  principles  of  salesman- 
ship before  he  is  permitted  to  face  actual  customers,  it  is 
certainly  to  the  financial  advantage  of  his  employer  to 
•rjve  him  this  training. 

The  possibility  of  training  in  the  art  of  selling  is 
dependent  on  the  fact  that  there  is  a  science  of  salesman- 
ship.    Science  is  merely  organized  knowledge.     There- 
fore the  science  of  salesmanship  is  the  logical  arrange- 
ment of  the  things  that  are  known  about  selling.     In 
training  his  salesmen  in  the  principles  of  salesmanship 
the  sales  manager  must  draw  from  his  own  experience 
and  from  the  experience  of  others  the  facts  and  princi- 
ples that  are  generally  recognized  as  fundamental  in 
selling,  and  he  must  present  this  material  in  logical, 
organized  form.     The  number  of  things  that  are  known 
about  the  psychology  and  practice  of  selling  are  con- 
stantly increasing.     The  literature  of  salesmanship  is 
growing  rapidly.     The  possibility  of  giving  practical, 
definite  instruction  in  selling  has  been  proved.     The 
progressive  sales  manager  takes  advantage  of  all  the 
methods  of  instruction  that  modern  investigation  and 
interest  in  the  subject  of  salesmanship  have  developed 
for  him,  and  he  rightfully  considers  that  no  part  of  his 
duties  is  of  more  value  in  increasing  the  efficiency  of  his 
organization  than  his  share  in  the  education  of  the  sales- 
men in  the  principles  that  are  fundamental  in  their 

work. 

90.  Training  in  construction  and  uses  of  goods  to  be 
sold, — The  second  branch  of  the  trp-ning  that  the  mod- 
ern sales  manager  provides  for  his  salesmen  is  in  the 
construction  and  uses  of  the  article  or  articles  that  are 


106 


SELLING  AND  BUYING 


to  be  sold.  Manufacturers  of  cash  registers  do  not  send 
out  new  salesmen  until  they  are  i)erfectly  familiar  with 
every  important  detail  in  the  construction  of  the  machine, 
until  they  are  skilled  in  its  operation,  and  until  they 
know  all  the  uses  to  which  it  may  be  put.  Manufac- 
turers of  automobiles  insist  that  their  salesmen  shall  have 
an  absolute  knowledge  of  the  car  they  are  to  sell  before 
they  are  permitted  to  approach  possible  purchasers. 
Goods  are  sold  now-a-days  not  so  much  because  the 
salesman  has  an  attractive  personality  as  because  the 
salesman  is  able  to  prove  that  it  would  be  to  the  buyer's 
advantage  to  purchase  them,  and  it  is  obvious  that  the 
salesman  can  be  successful  only  by  knowing  every  de- 
tail about  the  goods  that  could  have  any  possible  bearing 
on  their  utility  to  the  purchaser. 

A  selling  talk  is  simply  a  skillful  arrangement  of  seU- 
ing  points,  and  selling  points  are  simply  the  things 
about  the  goods  that  the  salesman  thinks  are  of  interest 
to  the  "prospect."  Knowledge  of  his  line  is  one  of  the 
fundamental  qualifications  of  the  successful  salesman. 
Unless  he  is  given  opportunity  to  acquire  this  knowl- 
edge before  he  faces  actual  customers,  his  efforts  are 
certain  to  be  less  successful  than  complete  knowledge 
from  the  start  would  have  made  them. 

91.  Three  methods  of  training  salesmen. — There  are 
three  methods  by  which  a  sales  manager  can  provide 
training  for  his  salesmen  in  the  goods  they  are  to  sell. 
The  method  that  he  selects  depends  on  the  nature  of  the 
goods  and  the  extent  to  which  he  is  willing  to  invest 
capital  in  the  salesman's  education  before  the  salesman 
is  actually  set  to  work.  The  three  methods  are  as  fol- 
lows : 

1.  A  conference  or  series  of  conferences  between  the 
sales  manager  and  the  salesman,  in  which  the  construe- 


METHODS  OF  TRAINING  SALESMEN 


107 


tion  and  selling  points  of  the  article  to  be  sold  are  care- 
fully considered  in  all  their  aspects.  This  verbal  in- 
struction may  or  may  not  be  supplemented  by  printed 
descriptions  of  the  article  and  its  selling  points. 

2.  A  visit  to  the  factory  so  that  the  salesman  can 
actually  see  the  article  in  process  of  production,  and 
learn  at  first  hand  the  quality  of  the  constituent  ele- 
ments and  of  the  final  product. 

3.  A  period  of  actual  employment  in  the  factory  for 
the  new  salesman,  so  that  he  may  become  familiar  with 
every  part  and  process. 

92.  Employment  in  the  factory  best  method. — Of 
these  three  methods  the  last  is  obviously  the  most  thor- 
ough and  far-reaching  in  its  results.  It  has  such 
marked  advantages  that  it  is  being  employed  by  a  con- 
stantly increasing  number  of  progressive  manufactur- 
ers, and  it  is  certain  to  play  a  larger  part  in  the  train- 
ing of  salesmen  in  the  future  than  it  has  in  the  past. 
The  thorough  familiarity  with  the  article  that  can  be  ac- 
quired by  actual  participation  in  its  construction  has 
two  results: 

First,  it  enables  the  salesman  to  talk  intelligently 
and  to  be  sure  of  his  ground  even  when  he  is  at- 
tempting to  sell  to  a  buyer  who  himself  has  an  exact 
technical  knowledge  of  the  article  he  wants  to  purchase. 

Second,  it  gives  a  salesman  confidence  in  his  knowl- 
edge and  in  the  article  he  is  to  sell.  It  gives  him  an- en- 
thusiasm for  his  line  that  can  not  be  dispelled  by  any 
number  of  complaints  from  customers  or  temporary 
faults  that  may  develop. 

The  man  who  has  gone  to  the  selling  force  from  the 
shop  is  in  tlie  strongest  possible  position  to  advance  the 
interests  of  his  employer.  If  his  training  in  construc- 
tion and  in  selling  are  equal,  he  can  talk  mechanical 


108 


SELLING  AND  BUYING 


points  intelligently  to  the  buyer  who  is  interested  in  and 
who  knows  that  phase  of  the  subject;  and  he  can  talk 
usefulness,  durability,  and  inoney-saving  qualities  to 
the  man  who  is  not  interested  in  mechanics.  He  can 
make  repairs  when  repairs  are  necessar>'.  In  short,  he 
is  in  a  i)osition  to  prove  to  purchasers  in  countless  ways 
that  he  knows  what  he  is  talking  about,  and  there  is 
nothing  that  is  so  calculated  to  inspire  confidence  on  the 
l)art  of  possible  purchasers  as  the  demonstrated  and  de- 
tii  «■''•/»  knowledge  of  the  salesman  about  the  article  he 
IS  trj'ing  to  sell. 

In  the  sale  of  many  goods  it  is  impossible  and  un- 
necessary for  the  sales  manager  to  provide  a  course  of 
instruction  in  the  factory  for  his  salesman;  but  in  any 
line  and  in  any  branch  of  merchandising  a  thorough 
knowledge  of  the  goods  that  are  to  be  sold  is  the  one 
quality  that  is  most  helpful  in  securing  for  a  salesman 
the  confidence  of  his  employer  and  of  his  customers. 

98.  Training  in  selling  methods. — The  third  branch 
of  training  that  the  sales  manager  should  provide  for 
his  selling  force  is  in  special  methods  of  selling  that  are 
peculiarly  applicable  to  the  article  that  is  to  be  sold. 
The  principles  of  salesmanship  are  the  same  under  all 
conditions,  but  their  application  varies  with  the  com- 
modities that  are  sold.  The  life  insurance  solicitor  does 
not  use  the  same  methods  as  the  salesman  in  a  retail 
store,  and  the  methods  of  the  wholesale  grocer's  sales- 
man are  not  the  same  as  those  of  the  man  who  sells  loco- 
motives to  a  great  railway.  The  successful  salejs  man- 
ager of  every  business  house  ought  to  know  the  best 
methods  of  selling  the  goods  that  he  has  to  distribute, 
and  he  ought  to  train  his  salesman  in  those  methods. 

It  is  true  that  the  man  who  possesses  the  qualifica- 
tions of  successful  salesmanship  will  in  time  if  left  to 


METHODS  OF  TKAINING  SALKSMKN  109 

himself,  find  out  the  methods  that  are  most  helpful  in 
disijosing  of  the  goods  he  is  called  uiwn  to  sell.  But 
organized  efforts  at  giving  him  this  knowledge  before 
he  faces  actual  customers  are  economical  of  his  time  and 
energy  and  are  distinctly  advantageous  from  the  stan<l 
point  of  his  employer. 

94.  Standard  selling  talks.— In  a  typical  case  this 
training  is  provided,  first,  by  requiring  the  new  sales- 
man to  learn  a  standard  selling  talk.     The  theory  of  the 
standard  selling  talk  is  that  for  any  given  condition 
there  is  one  best  way  of  approaching  the  customer  and 
of  presenting  the  selling  points  so  that  they  will  have 
the  maximum  effectiveness.     It  is  not  intended  that  this 
standard  selling  talk  shall  be  used  indiscriminately  in  all 
sitL  ♦ions.     A  salesman  is  not  a  machine,  and  he  can 
not  sell  goods  by  simply  repeating,  parrot-like,  a  sell- 
ing talk  that  some  one  has  prepared  for  him.     It  is  of 
great  advantage  to  him,  however,  to  be  grounded  in 
methods  of  selling  that  have  been  proved  successful, 
and  that  he  can  adapt  to  the  particular  problems  that 
he  ha.    c  meel.     A  sales  manager  of  experience  knows 
the  best  method  of  approaching  the  possible  purchaser, 
he  knows  the  "pulling  power"  of  the  various  selling 
points  and  the  most  effective  order  in  which  they  can 
be  presented,  he  knows  the  objections  that  have  to  be 
met,  and  he  knows  the  best  means  of  meeting  them. 
It  is  to  be  expected  that  he  would  be  in  a  better  position 
to  embody  these  various  points  in  a  strong  selling  ap- 
peal than  the  new  salesman  who  has  not  had  the  sales 
manager's  experience.     One  of  the  great  advantages  of 
the  standard  selling  talk  is  that  it  phrases  the  selling 
points  in  au  effective  manner. 

Every  salesman  will  in  time  develop  for  himself  the 
method  of  impressing  seUing  points  upon  customers 


no 


SELLING  AND  BUYING 


that  seems  best  adapted  to  his  personahty  and  to  the 
particular  individuals  to  whom  he  tries  to  make  sales. 
When  he  is  new  at  the  work,  however,  he  has  not  had 
the  experience  to  guide  him  in  suitable  expression  of 
the  points  he  wants  to  make,  and  he  can  advantage- 
ously use  the  words  of  others  who,  by  careful  study 
and  experience,  have  evolved  effective  statements  of 
the  more  important  ti'  »  that  the  salesman  ought  to 
say. 

Another  advantage  of  requiring  a  salesman  to  mem- 
orize a  standard  selling  talk  is  that  he  is  thereby  pro- 
vided with  a  fu'id  of  effective  phrases  that  he  can  draw 
upon  when  for  ?■■.■-  reason  he  is  unable  to  give  spon- 
taneous expression  to  his  own  ideas.  In  every  sales- 
man's experience  there  are  hours  and  sometimes  days 
when  "his  personality  does  not  seem  to  be  working  up 
to  normal" — when  he  finds  himself  incapable  of  ex- 
pressing ideas  quickly  and  well,  and  when  his  mind  is 
not  so  active  as  at  other  times.  This  may  be  due  to 
temporary  ill-health,  to  mental  moods,  or  to  any  of  a 
number  of  other  causes.  At  such  times,  under  former 
conditions,  the  salesman  ceased  work  and  waited  for  a 
return  of  the  inspiration  that  he  thought  essential  to  suc- 
cess in  his  activities.  If  he  has  stored  away  in  his  mem- 
ory a  stock  of  phrases  and  arguments,  worked  out  for 
him  in  logical,  effective  form,  they  will  unconsciously 
come  to  his  aid,  and  will  enable  him  to  make  sales  even 
though  his  work  may  not  be  as  expressive  of  his  indi- 
viduality as  is  customary  and  desirable.  This  is  not  an 
argument  for  mechanical  salesmanship.  It  is  simply 
one  method  of  insuring  the  highest  efficiency  of  the  sell- 
ing force  by  giving  the  salesman  a  sure  foundation  for 
the  development  of  individual  methods,  and  by  provid- 
ing him  with  a  thorough  knowledge  of  general  princi- 


METHODS  OF  TRAINING  SALESMEN  111 

pies  and  methods  of  proved  effectiveness  that  he  can 
adapt  to  his  individual  needs. 

95.  Adaptation  of  standard  selling  talks.— Aiier  a 
salesman  has  mastered  the  standard  selling  talk,  he  is 
usually  given  an  opportunity  to  learn  how  to  adapt  it 
to  a  great  variety  of  customers  under  conditions  where 
liis  mistakes  will  not  be  so  disastrous  to  himself  and  to 
his  employers  as  they  would  be  if  he  were  left  to  secure 
his  training  in  selling  by  actual  contact  with  real  pur- 
chasers. 

An  extreme  method  of  training  in  adapting  the  sell- 
ing talk  to  individual  classes  of  customers  is  illustrated 
by  the  school  for  salesmen  that  is  maintained  by  one  of 
the   largest   specialty   manufacturers   in   the   country. 
The  product  of  this  manufacturer  is  a  mechanical  con- 
trivance for  use  in  all  kinds  of  retail  stores.     The 
"school-room"  is  divided  into  sections,  each  one  of  which 
is  fitted  up  with  the  fixtures  and  stock  that  are  typical 
of  one  of  the  important  classes  of  retail  establishments. 
In  charge  of  each  miniature  store  there  is  a  man  who  en- 
acts the  role  of  proprietor  or  of  buyer  and  who  has  had 
actual  buying  experience  in  the  line  that  he  represents. 
The  embryo  salesman  is  required  to  enter  each  of  these 
little  stores  in  turn  and  to  make  mock  sales  to  the  buy- 
ers, in  each  case  adapting  the  standard  selling  talk  to 
the  peculiar  conditions  in  the  store  and  to  the  person- 
ality of  the  man  with  whom  he  is  dealing.     There  is  the 
closest  possible  approach  to  actual  conditions  in  the  field, 
and  the  effectiveness  of  the  system  of  instruction  is 
proved  by  the  success  of  the  salesmen  who  graduate 
from  this  "school." 

96.  Meeting  problems  peculiar  to  a  business. — Some 
modifir  i  of  this  method  of  giving  training  in  actual 
selling   ^  :n  use  by  a  great  many  modern  merchandis- 


112 


SELLING  AND  BUYING 


ing  establishments  of  all  kinds.  The  great  retail  stores, 
like  the  manufacturers,  all  over  the  country  are  recog- 
nizing the  value  of  teaching  their  new  sales-people  how 
to  meet  the  problems  that  are  peculiar  to  their  individual 
businesses.  Jobbers  as  a  class  have  been  the  last  to  see 
the  advantages  of  the  new  methods,  but  many  of  them 
also  are  now  giving  their  attention  to  methods  of  train- 
ing their  salesmen  for  greater  efficiency.  If  a  jobber 
carries  an  extensive  line  of  articles,  his  problem  of  train- 
ing salesmen  is  a  difficult  one,  because  of  the  practical 
difficulties  in  the  way  of  giving  the  salesmen  an  exact 
knowledge  of  all  the  goods  they  are  to  sell.  The  solu- 
tion of  this  difficulty  seems  to  be  found  chiefly  in  a 
multiplication  of  the  number  of  specialty  salesmen,  each 
one  of  whom  handles  only  a  limited  line  with  which  he 
can  become  thoroughly  familiar.  The  small,  general 
jobber,  it  is  true,  can  not  afford  to  adopt  this  method, 
but  the  wholesaler  that  covers  a  wide  territory  and  em- 
ploys many  salesmen  can  well  afford  to  consider  care- 
fully the  advantages  of  specializing  the  work  of  the 
salesmen  so  that  each  one  may  have  an  intimate  ac- 
quaintance with  all  the  essential  features  of  every  article 
that  he  handles. 

Training  in  selling  should  not  cease  with  the  grad- 
uation of  the  salesman  from  the  "school  of  salesman- 
ship." The  most  successful  sales  manager  is  the  one 
that  loses  no  opportunity  to  give  the  salesmen  definite, 
practical  instruction  in  principles  and  methods.  One 
of  the  greatest  selling  organizations  in  the  country  fre- 
quently revises  its  standard  selling  talks  and  requires 
all  its  salesmen,  under  pain  of  dismissal,  to  memorize 
everj'  revised  statement  of  selling  points  and  arguments. 
Every  communication  between  the  sales  manager  and 
his  men  should  be  designed  to  assist  the  salesmen  in  their 


METHODS  OF  TRAINING  SALESMEN  113 

activities.  Every  convention  or  gathering  of  salesmen 
should  give  them  new  aids  in  their  work.  Its  program 
should  include  talks  by  authorities  on  important  prin- 
ciples of  selling,  and  demonstration  sales  1  v  picked 
salesmen  for  the  purpose  of  bringing  out  new  ideas  p,nd 
methods. 

III-8 


CHAPTER  X 


SUPERVISION  OF  SALESMEN 

97.  Sales  manager's  duties, — The  third  great  field 
of  activities  in  which  the  sales  manager  must  endeavor 
to  reach  maximum  efficiency  if  he  is  to  do  all  in  his 
power  to  increase  the  efficiency  of  the  selling  organiza- 
tion, is  the  supervision  of  salesmen.  Many  of  the  prob- 
lems of  supervision  are  closely  allied  with  the  problem 
of  training  salesmen.  With  the  exception  of  some 
more  or  less  mechanical  details  of  selling  supervision 
that  will  be  considered  later,  the  sales  manager's  chief 
duties  of  a  supervising  nature  are  to  assist  the  salesman 
in  individual  sales  and  to  encourage  him  in  his  general 
activities. 

98.  Supervision  over  particular  sales. — Some  of  the 
ways  in  which  assistance  can  be  given  in  particular  sales 
are  as  follows : 

1.  Personal  visit  of  the  sales  manager  to  the  scene 
of  the  sale  and  the  joint  efforts  of  manager  and  sales- 
man upon  the  customer. 

2.  Letters  of  instruction  to  the  salesman. 

3.  Personal  letters  to  the  customer. 

4.  Advertising  matter  sent  to  the  customer. 

5.  Assignment  of  other  salesmen  to  help  in  the  sale. 

99.  Supervision  over  general  activities. — Encourage- 
ment to  the  salesman  in  his  general  activities  may 
be  given  by  the  sales  manager  in  a  variety  of  ways. 
Some  of  them  are  as  follows: 

114 


SUPKRVISION  OF  SALESMEN 


115 


1.  Personal  interviews  either  at  home  office  or  in 

field. 

2.  Letters  of  advice,  encouragement,  and  construc- 
tive criticism 

3.  Competitive  schemes  to  encourage  the  salesmen  to 
unusual  efforts  for  certain  periods. 

4.  Publication  of  a  house-organ. 

5.  Sales  department  conventions. 

100.  Personal  interviews. — Many  salesmen  operate 
directly  from  the  main  office  of  the  company  where  the 
sales  manager  makes  his  headquarters,  and  in  such  cases 
personal  interviews  between  manager  and  salesmen  are 
frequently  arranged.  Each  salesman  makes  his  report 
personally  to  the  sales  manager  at  the  end  of  every  trip, 
and  he  has  plenty  of  opportunity  to  secure  all  the  as- 
sistance he  needs  in  solving  the  problems  of  selling  in 
his  territory.  In  many  large  organizations,  however, 
some  of  the  salesmen's  territories  are  located  at  a  dis- 
tance from  the  main  office,  and  the  salesman  has  no  oc- 
casion to  come  in  to  headquarters  unless  the  sales  man- 
ager sends  for  him.  It  is  advisable  for  distant  salesmen 
to  be  called  in  for  conferences  with  the  sales  manager  at 
intervals  so  that  they  may  receive  the  advice  and  en- 
couragement that  is  essential  to  highest  success  in  their 
work,  and  that  the  manager  may  learn  directly  from 
them  the  conditions  that  exist  in  their  territories  with 
respect  to  the  sale  of  the  goods  of  the  house. 

It  is  just  as  important  for  the  manager  to  make  fre- 
quent trips  to  salesmen's  territories  as  it  is  for  the  sales- 
men to  visit  the  home  office.  Salesmen's  reports  are 
exceedingly  valuable  in  giving  the  manager  a  knowl- 
edge of  conditions  in  the  field,  but  they  can  never  en- 
tirely take  the  place  of  actual  first-hand  obsen'ation  by 
those  who  are  responsible  for  the  company's  policies. 


116 


SFXLING  AND  BUYING 


Retail  establishments  and  city  selling  organizations  have 
a  great  advantage  in  this  respect,  because  constant  per- 
sonal contact  is  possible  between  the  sales  people  and 
those  who  direct  their  activities. 

101.  Keeping  in  touch  tcith  salesmen  by  letter. — 
When  a  sales  manager  is  separated  from  his  sales- 
men, he  should  make  it  a  point  to  keep  in  close  touch 
with  them  by  letter.  Their  reports  form  the  basis  for 
his  letters  of  advice  and  encouragement.  If  criticism 
is  necessary,  it  should  be  given  in  a  manner  calculated  to 
increase  rather  than  to  decrease  the  salesman's  efficiency. 
Salesmen  are  often  exceedingly  sensitive;  their  work  is 
exacting  and  makes  great  lemands  upon  their  store  of 
nervous  energy.  If  they  have  been  doing  their  best,  but 
have  not  been  producing  normal  results,  they  expect 
and  need  encouragement  rather  than  criticism.  There 
is  nothing  that  can  so  effectively  destroy  the  efficiency 
of  a  conscientious  salesman  for  a  day  or  a  week  as  a 
sharp,  fault-finding  letter  from  his  manager.  If  he  has 
been  derelict  in  his  duties,  it  is  necessary  for  the  sake  of 
discipline  that  he  be  reprimanded,  but  the  reprimand 
should  be  carefully  phrased.  There  is  possibly  no  phase 
of  a  sales  manager's  duties  in  which  he  is  called  upon  to 
exercise  more  tact  and  real  executive  ability  than  in  his 
letters  to  his  men.  His  one  purpose  is  to  increase  sales, 
and  in  every  letter  he  should  have  in  mind  its  ultimate  ef- 
fect upon  the  productiveness  of  the  salesman. 

102.  Competitive  schemes  to  promote  selling  e/^- 
ciency. — Many  houses  use  competitive  schemes  of  vari- 
ous sorts,  with  or  without  prizes,  to  stimulate  the  sales- 
men to  unusual  efforts.  If  a  special  sale  is  in  progress 
on  any  article,  some  retail  dealers  offer  a  cash  prize  to 
the  sales-person  making  the  most  sales  of  that  article 
during  the  special  sale.     Jobbers  and  manufacturers 


SUPERVISION  OF  SALESMEN 


117 


frequently  encourage  special  efforts  by  offering  cash  or 
other  prizes  for  the  largest  total  sales  or  for  the  largest 
sales  of  any  particular  commodity  during  a  given  period. 
One  of  the  most  generally  used  methods  of  keeping 
salesmen  at  the  point  of  highest  working  efficiency  is 
known  as  the  quota  system.     The  principle  at  the  basis 
of  the  quota  system  is  that  a  salesman  will  work  harder 
to  produce  a  definite  result  that  he  knows  is  expected  of 
him  that  he  would  if  he  had  no  specific  go-1  in  view. 
The  quota  system  is  applied  in  a  variety  of  ways,  but  a 
typical  one  is  as  follows:    At  the  end  of  each  month's 
business  the  sales  manager  determines  upon  a  certain 
volume  of  sales  that  is  fair  to  expect  from  each  salesman 
during  the  succeeding  month.     This  is  known  as  the 
sales  quota.    The  quota  for  each  salesman  is  determined 
separately,  and  the  manager's  decision  is  based  upon  a 
careful  consideration  of  past  results  in  the  salesman's 
territory,  present  local   conditions  that   might   affect 
sales,  and  selling  and  advertising  plans  of  the  company 
that  might  have  a  bearing  on  the  sales  to  be  expected 
during  the  quota  period. 

It  is  evident  that  even  though  it  is  determined  after  a 
most  careful  consideration  of  all  pertinent  conditions,  a 
quota  must  finally  be  largely  arbitrary  in  character. 
This  fact  does  not  lessen  the  efficacy  of  the  system, 
provided  the  salesmen  know  that  the   same   general 
principles  are  applied  in  determining  the  quotas  for  all 
territories.     The  more  or  less  arbitrary  nature  of  the 
quota  works  no  injustice  to  any  one  salesman  if  the 
methods  of  determining  it  are  the  same  in  all  cases. 
Each  salesman  is  informed  of  the  quota  that  has  been  set 
for  him  for  the  ensuing  month,  and  he  is  urged  to  do  all 
in  his  power  to  reach  tho  mark  and  to  pass  it.     The  re- 
sult of  his  activities  for  the  month  are  usually  shown  by 


118 


SELLING  AND  BUYING 


a  percentage.  If  liis  quota  for  gross  sales  is  $2,000,  and 
if  he  sells  $1,.jOO  worth  of  goods,  his  percentage  for  the 
niontii  is  75.  If  he  sells  $2,.500  worth  of  goods,  his  per- 
centage is  125.  The  (juota  may  be  expressed  in  dollars, 
in  individual  articles,  in  cases  of  goods,  or  in  any  other 
way  that  suits  the  i)articular  business  under  considera- 
tion. 

In  the  case  of  a  general  jobber  or  manufacturer  whose 
salesmen  handle  a  large  line  of  goods,  it  is  difficult  to 
determine  a  quota  satisfactorily  expressing  the  relative 
importance  of  all  the  lines  in  the  total  sales.  This  is 
done,  however,  in  some  cases  by  setting  a  separate  quota 
for  each  of  the  different  classes  of  goods  handled.  It 
is  then  necessary  to  determine  the  relative  importance, 
from  the  standpoint  of  the  house,  of  the  sales  in  the  dif- 
ferent classes. 

It  may  be  the  policy  to  push  one  line  and  to  sell  only 
enough  of  another  to  supply  the  demand.  The  relative 
importance  of  the  different  classes  of  articles  is  repre- 
sented by  numbers.  The  class  of  least  importance  may 
be  represented  by  the  numl)er  1.  The  sale  of  another 
class  may  be  considered  to  be  twice  as  important  as  that 
of  the  first;  therefore  the  importance  of  this  second 
class  is  represented  by  the  number  2 ;  and  so  on.  Sup- 
pose, for  example,  that  a  salesman  has  a  quota  of  1,000 
for  sales  of  goods  in  class  A.  If  he  sells  900,  his  per- 
centage in  that  class  is  90.  If  the  relative  importance 
of  that  class  is  represented  by  the  number  3  (which  is 
called  the  "weight"  number),  this  percentage  of  90  is 
multiplied  by  3,  and  the  product,  270,  is  added  to  other 
l)roducts  similarly  obtained  in  all  the  other  classes. 

The  following  chart  shows  the  method  of  determining 
a  salesman's  final  monthly  percentage  when  he  handles 
four  different  classes  of  goods  whose  sale  is  considered 


SUPERVISION  OF  SALESMEN  119 

by  the  house  to  be  of  varying  degrees  of  importance,  and 
when  separate  quotas  are  set  for  each  class* 


Class  Qttot* 

A    1.000 

B    ♦OO 

c         aoo 

D    ■.■.' 300 


Sales 
90 

SOO 
33& 


Class  Weight 

percent  number 

90  S 

110  1 

100  S 

74  _« 

9 

Final  monthly  rating 


Product  obtained 
by  multiplying 
class  percent  by 
weight  number 

870 

110 

aoo 

MO 

830 

92.2% 


The  final  montUy  rating  is  found  by  "ff  8  »» J** 
weight  numbers  and  then  by  adding  all  the  pH»lurts 
i„  L  last  colunm.  The  sum  of  the  P«"lucts  .s  then 
divided  by  the  sum  of  the  weight  numbers,  and  the  result 
is  the  final  monthly  rating.  .  . 

The  quota  system  is  of  ehief  value  when  it  .s  eompet- 
tive  It  is  not  necessary  to  let  any  salesman  know  the 
^tt^  and  total  sales  of  the  others,  but  >t  .s  f  requertly 

dvisable  to  pubUsh  aU  the  final  m-tWy  « X.^ 
each  salesman  can  see  how  the  results  of  lus  efforts  com 
pare  with  the  results  of  others.    The  effectiveness  of 
Zl  aTompetitive  system  is  surprising.     Salesmen  work 
:*d»3k  a  fewVints  above  their  bellows  t^n  they 
do  when  the  only  incentive  is  larger  fon.m.s«ons  on^in^ 
creased  sales.     The  love  of  a  g«ne  is  mnate  m  hmcan 
nature,  and  any  system  that  makes  a  game  out  of  buM 
ness,  that  gives  the  salesmen  an  opportunity  ^  compete 
wllh  their  feUows  for  precedence  on  the  ranking  hrt, 
«ms  to  bring  results  that  are  entirely  disproportionate 
rr  smaU  lount  of  time  and  labor  that  are  rcqmr^ 
to  maintain  even  a  complicated  rating  system_     If  cash 
or  other  prizes  are  offered  for  precedence  on  the  list,  the 
incentive  to  head  it  is,  of  course,  greatly  increased. 
108.  Ho«e.or(,a«..-Many  sales  departments  pub- 


r 

'V  ■ 

r 


1X0 


SELLING  AND  BUYING 


lish  house-organs  to  keep  the  sales  officials  in  touch  with 
the  salesmen,  and  to  cultivate  in  the  selling  force  an 
esprit  de  corps  that  is  valuahle  in  promoting  united  ef- 
fort toward  a  conmion  end.  A  house-organ  of  this  kind 
usually  contains  items  on  salesmanship,  "ginger  talks" 
by  the  sales  manager,  and  general  news  of  the  house. 
It  is,  in  addition,  an  effective  medium  for  the  publica- 
tion of  the  relative  rank  of  the  salesmen  as  determined 
by  their  monthly  ratings.  The  development  of  this 
method  of  keeping  the  salesmen  in  close  touch  with  the 
house  is  one  of  the  marked  features  of  modern  merchan- 
dising. Some  house-organs  are  published  daily,  others 
■weekly,  and  others  at  longer  intervals. 

104.  Selling  conferences. — Sales  department  conven- 
tions are  widely  used  by  selling  organizations  whose 
members  work  in  widely  separated  territories  and  do 
not  come  into  frequent  contact  with  one  another  or  with 
their  sales  manager.  The  salesmen  are  called  together 
for  conferences  at  certain  intervals,  either  at  the  factory, 
the  home  office,  or  at  some  centrally  located  point. 
These  conferences  may  have  one  or  more  of  the  follow- 
ing purposes: 

1.  To  promote  a  feeling  of  unity  among  the  men. 
The  salesman  working  in  a  definite  territory,  where  he 
seldom  comes  into  contact  with  other  representatives  of 
the  house,  is  likely  to  forget  that  he  is  part  of  an  organi- 
zation all  of  whose  members  are  working  toward  the 
same  end.  A  periodical  meeting  with  his  fellow  sales- 
men tends  to  increase  his  eflSciency  and  to  develop  in  him 
a  spirit  of  co-operation  with  all  those  who  are  selHng  the 
same  line  of  goods. 

2.  To  arouse  enthusiasm.  The  man  who  is  working 
in  an  isolated  territory,  and  who  seldom  comes  into  touch 
directly  with  his  superiors,  has  a  tendency  to  get  into  a 


SUPERVISION  OF  SALESMEN 


ISl 


iMit  and  to  make  his  work  mechanical.  A  conference 
with  others  working  along  the  same  line  gives  him  new 
points  of  view,  and  the  talks  by  the  officials  of  the  com- 
pany whom  he  meets  at  the  convention  arouse  his  en- 
thusiasm and  a  determination  to  redouble  his  eflPorts 
when  he  returns  to  his  territory. 

3.  To  encourage  the  interchange  of  ideas  among  the 
men.  No  one  salesman  in  any  business  has  a  knowl- 
edge of  all  the  selling  schemes  that  he  might  use  to  ad- 
Mintage.  Each  one  can  learn  from  the  others  plans  that 
liave  worked,  as  well  as  plans  that  have  failed,  and  this 
information  can  assist  him  in  his  own  work. 

4.  To  continue  the  specific  training  of  the  salesmen 
in  their  general  duties,  and  to  instruct  them  in  new  sell- 
ing methods  and  in  plans  of  marketing  new  articles  that 
may  be  placed  upon  the  market.  Sales  demonstrations 
and  technical  talks  by  selling  authorities  have  an  im- 
portant place  in  sales  department  conventions.  In  ad- 
dition, such  conferences  are  /aluable  means  of  impart- 
ing to  the  salesmen  first-hand  instruction  in  new 
products  and  new  selling  methods. 

105.  Other  duties  of  sales  manager.— We  have  found 
that  the  chief  duties  of  a  sales  manager  with  respect  to 
the  supervision  of  the  salesmen  are  to  give  them  assist- 
ance in  individual  sales  and  to  encourage  and  help  them 
in  their  general  activities.     These,  of  course,  by  no 
means  comprise  all  his  duties  of  a  supervising  nature. 
Among  the  multitude  of  things  that  engage  his  atten- 
tion, three  others  stand  out  prominently.    He  must  de- 
termine upon  suitable  methods  of  compensating  his  sell- 
ing force,  he  must  assign  territories,  and  he  must  adopt 
satisfactory  methods  of  keeping  in  touch  with  his  sales- 
men. 
106.  Compensation  of  salesmen.— There   are  three 


■- 


ISf 


SELLING  AND  BUYING 


principal  methods  of  compensating  salesmen  without 
taking  into  consideration  the  question  of  allowances  for 
traveling  and  other  expenses.  They  are:  commission, 
salary,  and  a  combination  of  conunission  and  salary. 
There  are  many  high-grade  salesmen  who  refuse  to  work 
on  any  other  than  a  commission  basis.  They  are  so 
confident  of  their  ability  to  produce  results  that  they 
insist  on  having  their  compensation  measured  di- 
rectly by  the  amount  of  their  sales.  There  is  no  question 
that  there  is  a  greater  incentive  for  an  efficient  man  to 
work  harder  for  a  commission  than  for  a  salary.  The 
commission  method  of  payment,  however,  has  one  dis- 
advantage. The  salesman  feels  that  he  is  more  his  own 
master  than  when  he  is  working  for  a  salary.  He  has  a 
keen  interest  in  increasing  his  own  inmiediate  earnings, 
and  he  is  not  always  willing  to  follow  a  policy  that  means 
the  sacrifice  of  large  total  sales  for  the  moment  even 
though  the  purpose  of  the  policy  may  be  ultimately  to 
increase  the  business  in  his  territory. 

In  some  sections  of  the  country  wholesale  grocers' 
salesmen  are  paid  entirely  by  commission  on  the  profits 
resulting  from  their  sales.  Naturally  they  are  inter- 
ested only  in  the  sale  of  goods  that  carry  a  long  profit. 
It  is  sometimes  to  the  advantage  of  the  jobbers  to  push 
the  goods  of  manufacturers  whose  products  may  not 
carry  the  maximum  profit  but  who  recognize  the  job- 
bers as  their  exclusive  distributers  and  who  expect  the 
support  of  the  jobbers  in  return.  In  such  cases  the 
wholesale  dealers  have  no  means  of  forcing  the  sales- 
men to  push  the  goods  they  want  pushed,  except  moral 
persuasion  and  the  fear  of  discharge.  Neither  of  these 
means  is  particularly  effective  in  the  case  of  the  compe- 
tent salesman  who  has  proved  his  ability  to  make  profits 
for  his  employer  and  for  himself. 


SUPERVISION  OF  SALESMEN 


Uii 


The   salary   nietlMxl   of   compensating   salesmen   is 
usually  employed  when  the  salesmen  are  reiiuired  to 
give  paft  of  their  time  to  other  than  strictly  selling 
duties — when,  for  instance,  they  are  called  upon  to  act 
lis  "missionaries,"  to  cultivate  friendly  relations  with 
the  trade,  to  investigate  and  report  on  local  conditions, 
to  enlist  the  support  of  all  the  factors  in  a  contemplated 
selling  campaign,  and  to  do  any  of  the  other  numerous 
duties  that  frequently  fall  to  a  salesman's  lot,  which 
are  not  immediately  effective  in  increasing  the  total 
volume  of  any  individual's  sales.    Of  course  the  broad- 
minded  salesman,  even  when  he  is  working  on  com- 
mission, is  willing  to  give  a  certain  amount  of  his  time 
to  such  duties,  but  when  they  form  a  large  part  of  his 
activities,  the  best  results  are  usually  secured  by  placing 
the  salesman  on  a  salary  basis.     In  cases  of  this  sort 
many  houses  guarantee  a  sufficient  salary  with  propor- 
tionate increases  in  accordance  with  the  increased  total 
sales  in  the  territory.     New  salesmen  are  ahnost  always 
^riven  a  minimum  salary,  which  they  are  able  to  supple- 
ment by  conmiissions  on  sales  in  excess  of  an  agreed 
upon  amount. 

107.  Salesman's  expenses. — The  question  of  sales- 
men's expenses  is  closely  connected  with  the  question  of 
compensation.  If  a  house  pays  the  traveling  expenses 
of  its  salesmen,  it  is  necessary  to  have  the  expenses  re- 
ported at  frequent  periods  and  in  detail.  They  must  be 
carefully  watched  by  the  sales  manager,  because  travel- 
ing expenses  often  form  a  considerable  part  of  the  total 
selling  costs,  and  the  profits  on  large  total  sales  are 
liable  to  be  dissipated  by  excessive  costs  of  selling.  It 
is  obvious  that  the  item  of  expenses  is  one  that  is  diffi- 
cult to  audit.  Unfortunately  some  salesmen  permit 
their  moral  sense  to  become  a  bit  blunted  when  they  re- 


124 


SELLING  AND  BUYING 


port  their  expenses  to  the  house;  Ihey  are  not  always  too 
careful  to  report  the  exact  amounts  that  they  have  ex- 
pended in  the  interests  of  their  employer.  The  problem 
of  obviating  the  possibility  of  padded  expense  accounts 
is  a  difficult  one  for  the  sales  manager  to  solve. 

Hotel  bills,  railroad  fares,  and  sundries,  are  the  three 
general  classes  of  expenses  incurred  by  a  traveling  sales- 
man. Some  houses  fix  a  definite  amount  which  a  sales- 
man is  permitted  to  spend  each  day  for  room  and  meals. 
When  this  is  done,  the  salesman  will  seldom  report  less 
than  the  maximum  amount,  but  the  system  is  often  pref- 
erable to  having  no  maximum  at  all.  Since  railroad 
rates  have  been  made  uniform,  the  item  of  transporta- 
tion expenses  is  easily  checked  by  requiring  the  salesman 
to  show  the  number  of  miles  covered  in  each  railroad 
journey  together  with  the  cash  fare  or  mileage  collected, 
and  by  checking  up  this  data  with  an  office  file  of  rail- 
road guides  and  tariff  sheets.  The  item  of  sundries  is 
the  most  difficult  of  all  to  audit.  In  many  cases 
charges  are  permitted  under  this  heading  only  for  cer- 
tain specified  purposes.  If  a  salesman  is  allowed  to 
"buy  business"  to  any  extent  at  all,  his  tendency  tdward 
extravagance  in  this  direction  may  be  checked  by  re- 
(piiring  him  to  itemize  even  the  smallest  expense  that  is 
incurred.  But  the  idea  that  a  customer  has  to  be  enter- 
tained in  order  to  get  his  business  is  happily  going  out 
of  fashion,  and  with  its  complete  disappefance  will  van- 
ish one  of  the  greatest  opportunities  for  a  salesman 
to  betray  the  confidence  of  the  employer  who  entrusts 
him  with  an  expense  account. 

108.  Assignment  of  sales  territories. — The  assign- 
ment of  territory  is  a  question  whose  solution  can  not  be 
governed  by  general  principles.  It  depends  on  the  na- 
ture of  tlie  goods  to  be  marketed,  the  demand  for  them, 


SUPERVISION  OF  SALESMEN 


125 


the  population  and  area  of  the  possible  market,  the  ex- 
tent and  character  of  transportation  facilities,  the 
amount  of  competition,  and  the  number  of  salesmen 
who  can  be  employed.  The  first  point  to  be  decided  is 
the  number  of  times  it  is  advisable  to  have  each  possible 
customer  called  upon  during  a  given  period.  The  ter- 
ritory is  then  divided  so  that  this  ideal  can  be  most  nearly 
approached  under  the  existing  conditions. 

One  large  house  that  operates  in  a  thickly  settled  por- 
tion of  the  country  where  transportation  facilities  are 
approximately  uniform  in  extent  and  character,  has 
adopted  a  certain  amount  of  population  as  the  unit  for 
each  salesman's  territory.     Territory  boundaries  follow 
county  or  state  lines  wherever  that  is  possible  without  in- 
terfering  seriously   with  the   population   unit.     If   a 
house  were  operating  in  the  national  field,  it  would  be 
impossible  to  use  the  population  unit  exclusively,  be- 
cause a  salesman  who  could  easily  and  frequently  can- 
vass all  the  dealers  in  a  district  with  250,000  population 
in  the  East,  for  example,  could  not  so  easily  cover  a  dis- 
trict with  equal  population  in  one  of  the  sparsely  pop- 
ulated western  states. 

109.  Keeping  in  touch  'with  salesmen. — ^We  have 
already  indicated  some  methods  by  which  the  sales 
manager  keeps  in  touch  with  his  selling  force.  His 
function  of  helping  them  in  individual  sales  and  in  their 
general  activities  requires  him  to  see  them  frequently  in 
person,  to  correspond  with  them,  and  to  instruct  and 
help  them  with  the  aid  of  house  organs  and  other  pub- 
lications. We  are  to  learn  that  he  is  also  to  keep  in 
touch  with  them  through  their  reports. 

In  addition,  various  mechanical  devices  are  used  to 
enable  the  sales  manager  to  know  exactly  where  the 
salesmen  are  working  and  their  methods  of  covering 


126 


SELLING  AND  BUYING 


their  territories.  Each  salesman  is  usually  required  to 
send  in  a  route  list  at  the  beginning  of  every  week,  to  in- 
dicate his  exact  location  on  each  day  of  the  coming 
week.  His  movements  are  followed  by  means  of  this 
route  list  and  his  daily  reports.  Frequently  a  map  and 
tack  system  is  introduced  to  represent  his  movements 
graphically.  His  territory  is  charted  on  a  map,  and 
pins  connected  by  a  string  are  inserted  in  the  towns  that 
he  has  covered  or  is  to  cover,  in  their  proper  order. 

110.  Knowledge  of  the  business  as  factor  in  promoting 
sales  department  efficiency. — The  last  important  quali- 
fication of  a  successful  sales  manager  is  a  thorough 
knowledge  of  the  business  in  which  he  is  engaged,  and 
the  ability  to  use  that  knowledge  effectively  in  promot- 
ing the  efficiency  of  the  entire  selling  organization.  By 
knowledge  of  the  business  is  meant  not  merely  an  inti- 
mate knowledge  of  the  personnel  and  policies  of  the 
house  the  sales  manager  represents  or  of  the  article  or 
articles  that  his  force  of  salesmen  are  to  sell.  All  this  is 
essential,  of  course,  but  it  is  also  necessary  for  a  sales 
manager  to  know  every  phase  of  the  general  line  of 
business  in  which  he  is  engaged.  He  must  know  his 
own  line,  and  he  must  also  know  the  lines  of  all  of  his 
important  competitors.  He  must  know  what  adver- 
tising they  are  doing,  where  they  are  making  inroads 
upon  his  own  business,  what  new  methods  they  are  using 
in  the  sale  of  their  goods,  new  products  that  they  may 
be  offering,  their  regular  prices  and  discounts,  and,  so 
far  as  possible,  the  special  inducements  they  offer  to  in- 
dividual customers.  In  short,  the  ideal  sales  manager 
is  so  familiar  with  the  competitive  field  in  which  his  sales- 
men operate  that  he  is  in  a  position  to  use  the  forces  at 
his  command  to  the  best  advantage  possible. 

The  information  that  is  necessary  for  him  to  have 


SUPERVISION  OF  SALESMEN 


127 


al)out  all  phases  of  the  business  in  which  he  is  engaged 
may  come  to  him  through  his  own  experience  and  ob- 
servation and  by  reports  from  the  office  and  from  the 
field.  The  reports  may  be  divided  into  three  classes: 
credit,  statistical,  and  general 


CHAPTER  XI 


REPORTS  AND  DUTIES  OF  SALESMEN 


111.  Credit  reporta. — In  some  cases  the  credit  re- 
ports are  initiated  by  the  sales  department.  They  are 
made  by  the  salesmen  on  special  forms  prepared  there- 
for, as  part  of  their  regular  routine.  When  this  is  not 
the  case,  the  credit  reports  come  to  the  sales  manager 
from  the  accounting  and  credit  departments.  They 
may  show  when  a  customer's  bill  is  overdue,  when  his 
financial  condition  has  been  strengthened  or  weakened 
for  any  cause,  or  when  there  has  been  any  change  in  his 
business  relations  which  would  interest  the  sales  depart- 
ment. Selling  and  credits  are  vitally  connected.  A 
successful  salesman  never  forgets  that  a  sale  is  not  made 
until  it  has  been  accepted  by  the  credit  department,  and 
that  time  spent  in  getting  a  big  order  from  a  dealer 
with  small  credit  is  time  wasted.  Accordingly  it  is  the 
sales  manager's  duty  to  transmit  to  the  salesmen  in  the 
field  all  items  of  credit  information  that  may  be  of  in- 
terest to  the  salesmen  in  their  relations  with  their  cus- 
tomers. 

112.  Purpose  of  salesmen's  reports. — The  statistical 
and  general  reports  that  help  the  sales  manager  in  se- 
curing a  complete  knowledge  of  the  business  may  reach 
him  directly  from  the  salesmen  in  the  field,  or  they  may 
be  prepared  for  his  information  from  records  in  the 
office.  The  reports  that  come  directly  from  the  sales- 
men usually  have  the  following  purposes : 

128 


REPORTS  AND  DUTIES  OF  SALESMEN        129 

1.  To  enable  the  sales  manager  to  judge  the  efficiency 
of  the  salesmen. 

2.  To  enable  him  to  know  conditions  with  respect  to 
individual  customers  as  well  as  in  entire  territories,  and 
thereby  to  anticipate  and  check  a  threatened  or  actual 
falling  off  in  sales. 

3.  To  keep  him  in  close  touch  with  all  news  of  interest 

in  the  business. 

4.  To  provide  material  for  periodical  statistical  re- 
ports, which,  in  turn,  are  designed  to  give  the  sales  man- 
ager the  desired  sales  data  in  organized,  convenient 
form. 

In  order  to  accomplish  these  four  purposes,  the  data 
contained  in  the  salesmen's  reports  is  usually  divided 
into  two  general  classes:  first,  that  nhich  has  reference 
to  individual  customers  or  possible  customers;  second, 
that  which  treats  of  general  trade  conditions. 

113.  A  typical  salesman's  report. — In  the  typical 
case  of  a  salesman  selling  a  grocer's  specialty  he  is  re- 
quired to  call  upon  every  retail  grocery  dealer  in  every 
town  he  visits.  The  blanks  on  his  daily  report  form 
call  for  the  following  information  about  each  dealer 
whom  he  interviews: 

1.  Name  and  address. 

2.  Which  of  the  different  sizes  and  brands  of  the  goods 
handled  by  salesman  are  carried  in  dealer's  stock,  with  ap- 
proximate amount  of  each  one  on  hand. 

3.  The  important  competing  lines  that  are  carried  by  dealer. 

4.  Complete  statement  of  the  items  contained  in  the  order  if 
ii  sale  is  made. 

5.  If  no  sale  is  made,  the  probable  reasons  therefor. 

6.  The  brands  of  goods  in  the  general  class  handled  by  the 

salesman,  which  dealer  reports  as  his  first  and  second  "best 

sellers." 
Ill— 9 


190 


SELLING  AND  BUYING 


7.  Advertising  matter  left  with  dealer. 

8.  Advertising  matter  to  be  sent  to  dealer. 

9.  Dissatisfaction  of  dealer,  if  any,  with  the  goods  or  with 
his  treatment  by  the  house,  and  suggestions  by  salesmen  of 
methods  for  removing  the  dissatisfaction. 

Information  of  this  nature  in  the  salesman's  daily  re- 
port enables  the  manager  to  picture  with  a  fair  degree 
of  accuracy  the  conditions  under  which  the  salesman 
worked,  and,  to  a  certain  extent,  to  judge  the  efficiency 
of  the  salesman  in  dealing  with  competitive  conditions. 
This  information  also  gives  the  sales  manager  a  running 
record  of  the  status  of  dealers'  stocks  and  of  any  increase 
or  decrease  in  competition,  and  it  provides  some  of  the 
material  for  periodical  statistical  reports  that  are  com- 
piled at  the  office. 

114.  Salesmen  must  observe  closely-  -To  keep  the 
sales  manager  sufficiently  in  touch  with  general  trade 
conditions,  the  salesman  has  to  develop  his  powers  of 
observation  and  analysis  to  a  high  degree.  Some  sales- 
men's daily  report  forms  contain  definite  space  for  the 
various  classes  of  data  desired.  In  other  cases  the  sales 
manager  prefers  to  receive  this  information  in  a  general 
letter  from  the  salesman.  In  both  instances  the  sales- 
man is  usually  asked  to  report  all  items  of  interest  along 
the  following  lines : 

1.  New  and  important  competition. 

2.  New  advertising  being  done  by  competitors. 

3.  Changes  in  competitors'  products  and  prices. 

4.  Apparent  changes  in  demand. 

5.  Local  business  conditions  that  are  likely  to  affect 
demand. 

6.  General  attitude  of  customers  toward  the  product 
of  the  house. 


REPORTS  AND  DUTIES  OF  SALESMEN        131 

Information  of  this  character,  periodically  received 
from  the  salesmen,  and  regularly  passing  under  the  in- 
spection of  the  sales  manager,  should  give  the  latter  a 
comprehensive  survey  of  the  field  in  which  the  salesmen 
are  working.  It  should  show  him,  in  the  case  of  each 
customer,  when  there  is  a  necessity  for  additional  sell- 
ing effort  to  protect  business  against  the  inroads  of 
competitors,  and  when  there  seems  to  be  an  unusual  op- 
jjortunity  to  get  new  business  in  a  town.  In  a  general 
way  the  inspection  of  the  salesmen's  reports  shows  the 
sales  manager  whether  sales  are  increasing  or  are  falling 
off.  The  most  important  result  of  a  careful,  intelligent 
study  of  the  salesmen's  reports,  however,  is  that  it  gives 
the  manager  an  intimate  knowledge  of  conditions  which 
may  be  influential  in  causing  a  decrease  in  business,  and 
this  knowledge,  to  a  certain  extent,  enables  him  to  fore- 
see a  possible  falling  off  in  sales  and  to  neutralize  the  un- 
favorable conditions  by  increased  activity  of  the  sales 
department. 

115.  ^  typical  statistical  system. — In  the  typical  case 
that  we  have  been  considering  the  salesman's  reports  on 
his  various  visits  to  a  town  are  summarized  on  a  town 
record  card.  Each  card  contains  spaces  for  records 
covering  canvasses  of  the  town  during  several  years. 
The  cards  provide  a  compact  exhibit  of  the  condition  of 
the  company's  business  in  every  town  which  their  sales- 
men have  visited.  For  each  canvass  of  the  town  the 
following  data  is  summarized: 

1.  Date  of  canvass. 

2.  Number  of  dealers  called  upon. 

3.  Number  of  dealers  carrying  in  stock  each  of  the 
brands  sold  by  the  house,  as  well  as  brands  of  principal 
competitors. 


198 


SELLING  AND  BUYING 


4.  Number  of  dealers  reporting  each  of  the  various 
brands  as  "best  seller"  or  "second  best  seller." 

5.  Number  of  separate  sales  made  during  the  canvass 
and  the  totals  of  the  different  items  included  m  the  or- 
ders. 

6.  Advertising  activities  of  competitors. 

On  the  back  of  each  town  record  card  is  entered  a 
brief  statement  of  all  local  advertising  and  selling  cam- 
paigns conducted  by  the  house  that  is  keeping  the  rec- 
ord, in  the  town  under  consideration.  Space  is  also 
provided  for  a  monthly,  quarterly,  and  yearly  record  of 
all  shipments,  by  brands,  of  the  company  s  goods  to  cus- 
tomers in  that  town. 

In  addition  to  the  record  of  shipments  on  the  town 
record  cards,  daily,  monthly,  quarterly,  semi-yearly,  and 
yearly  summaries  of  shipments  are  prepared,  show- 
ing sales  by  brands,  by  towns,  by  salesmen's  ter- 
ritories, by  states,  by  selling  divisions,  and  for  the  en- 
tire country.  Each  of  these  statements  is  comparative; 
that  is,  it  shows  sales  for  the  current  year  as  compared 
with  those  for  one  or  more  years  preceding. 

The  foregoing  description  of  a  statistical  system  is 
merely  suggestive  of  the  many  ways  in  which  the  re- 
ports of  the  salesmen  and  the  sales  records  may  be 
utilized  in  the  compilation  of  statements  that  assist  the 
sales  manager  in  knowing  where  trade  is  weak  and 
where  it  is  strong — in  other  words,  in  acquiring  a  com- 
plete knowledge  of  the  business.  With  this  definite 
knowledge  he  can  apply  the  necessary  stimulus  to  the 
business  in  the  way  of  advertising  and  selling  eflforts 
with  the  greatest  economy  of  time  and  expense.  In 
small  organizations  the  compilation  of  statistical  data 
is  one  of  the  duties  of  the  accounting  department.  In 
large  organizations  the  statistics  are  often  recorded  and 


REPORTS  AND  DUTIES  OF  SALESMEN        133 

compiled  by  a  separate  department  with  a  skilled  statis- 
tician at  its  head.  The  maintenance  of  an  efficient 
statistical  department  is  expensive,  and  it  would  have 
no  place  in  a  business  organization  unless  its  efforts 
were  productive  of  larger  sales  and  increased  profits. 
That  the  compilation  and  intelligent  use  of  statistical 
(lata  has  this  result  is  evidenced  by  the  increasing  un- 
portance  of  the  statistical  department  in  large  corpora- 
tions. 

116.  Salesman's  part  in  promoting  sales  department 
efficiency.— T\m%  far  in  the  consideration  of  the  selling 
campaign  we  have  considered  the  problem  of  develop- 
ing sales  department  efficiency  primarily  from  the 
standpoint  of  the  sales  manager.  The  salesman,  how- 
ever, is  as  important  in  this  movement  as  his  manager, 
and  in  many  of  the  methods  that  have  been  discussed 
the  salesman's  part  is  at  least  equal  to  that  of  the  sales 
manager.  In  order  to  indicate  the  salesman's  share  in 
the  development  of  sales  department  efficiency  it  is  only 
necessary  to  state  and  to  consider  briefly  the  three  as- 
pects of  his  duties  in  each  of  which  he  should  endeavor  to 
perfect  himself.  He  is  ordinarily  expected  to  do  three 
things : 

1.  Sell  goods. 

2.  Maintain  the  reputation  of  the  house  and  to  do  all 
in  his  power  to  increase  its  prestige. 

3.  Observe  and  report  items  of  information  that  are 
of  interest  to  the  sales  manager. 

The  actual  sale  of  goods  depends  on  the  salesman's 
practice  of  the  principles  of  salesmanship.  This  is  such 
an  important  factor  in  his  efficiency  that  it  is  reserved 
for  separate  consideration  in  a  subsequent  chapter. 

The  salesman  is  the  representative  of  the  house  that 
employs  him.    Many  customers  never  see  any  member 


\tU 


SELLING  AND  BUYING 


i 
It 


of  the  house  organization  except  the  salesman  who  so- 
licits their  orders.  It  is  natural,  therefore,  that  the  cus- 
tomer should  receive  his  impression  of  the  house  from 
the  salesman.  Every  successful  business  house  has  cer- 
tain policies — methods  of  doing  business,  attitude  to- 
ward its  customers,  business  ideals — which  are  part  of 
the  personality  of  the  organization  and  which  it  should 
cherish  as  carefully  as  an  individual  cherishes  his  repu- 
tation. The  salesman  should  represent  these  policies. 
As  an  individual  he  should  do  nothing  inconsistent  with 
the  policies  of  the  house  he  represents.  He  should  al- 
ways remember  that  he  is  the  house  so  far  as  th  '  cus- 
tomer is  concerned,  and  that  it  is  in  his  power  to  do  seri- 
ous injury  to  his  employer  by  an  ill-considered  word  or 
action. 

The  third  way  in  which  the  salesman  can  contribute 
to  the  highest  efficiency  of  the  sales  department  is  by  ob- 
ser\'ing  and  reporting  the  trade  conditions  that  are  of 
interest  and  assistance  to  his  manager.  The  general 
character  of  the  reports  that  he  is  frequently  required 
to  make  has  already  been  indicated.  Salesmen  are 
sometimes  unwilling  to  take  the  time  and  trouble  to 
make  accurate  and  complete  reports;  they  look  upon  the 
requirement  of  detailed  reports  as  an  unnecessarily 
burdensome  addition  to  their  already  difficult  duties. 
This  is  a  short-sighted  and  mistaken  attitude.  The 
salesman  is  a  trade  missionary;  he  must  often  wait  a 
long  time  to  see  the  results  of  his  efforts.  His  ultimate 
aim  is  orders,  but  he  must  frequently  get  orders  indi- 
rectly, and  he  should  be  willing  to  give  all  the  assistance 
in  his  power  to  any  movement  that  is  calculated  to  in- 
crease the  productiveness  of  his  territorj-. 

His  accurate  reports  of  important  business  conditions 
in  his  territorj^  enable  the  selling  officials  to  direct  the 


REPORTS  AND  DUTIES  OP  SALESMEN        185 

advertising  and  selling  forces  at  their  command  in  such 
a  way  that  he  will  ultimately  he  able  to  book  orders  that 
might  be  unobtainable  by  his  own  unassisted  efforts. 
Successful  selling  is  more  than  mere  personal  contact 
between  salesman  and  consumer.  It  is  a  linking  up  of 
a  large  number  of  forces,  many  of  which  are  at  least 
of  equal  importance  with  the  salesman  hims.lf.  Co- 
operation between  all  these  forces  is  essential  to  the  high- 
est success  in  every  form  of  distribution,  and  the  sales- 
man who  refuses  to  recognize  this  fact,  willfully  limits 
his  own  efficiency  and  that  of  the  selling  organization  of 
which  he  is  a  part. 


CHAPTER  XII 

PRINCIPLES  OF  SALESMANSHIP 

117.  Definition  of  salesmanship. — There  are  so  many 
phases  of  salesmanship,  and  so  many  ways  in  which  it 
can  l)e  applied,  that  a  satisfactory  definition  of  the  term 
is  difficult  of  formulation.  In  a  broad  sense  it  is  fre- 
quently used  to  indicate  any  method  by  which  one  in- 
dividual attempts  to  influence  another  to  take  a  desired 
action  or  to  adopt  a  certain  mental  attitude.  However, 
we  are  concerned  only  with  commercial  salesmanship. 
The  essential  feature  of  commercial  salesmanship  is  an 
exchange  of  values;  and  the  practice  of  commercial  sales- 
manship is  the  attempt  on  the  part  of  one  person  to 
induce  another  to  accept  ownership  of  a  commodity  for 
which  something  of  value  is  to  be  given  in  exchange. 
This  is  a  sufficiently  satisfactory  explanation  of  what 
salesmanship  means,  though  it  may  not  be  a  scientifically 
accurate  definition.  The  chief  purpose  of  all  business 
is  to  make  profits,  and  profits  can  not  be  made  unless 
there  is  an  exchange  of  values  of  some  sort.  In  every 
industry  or  business  or  profession  the  sale  of  goods  or 
ser\'ices  is  the  final  aim,  and  because  of  this  universal 
practice  of  the  art  of  salesmanship,  its  principles  are 
of  importance  to  every  worker  in  the  business  field. 

118.  Who  is  a  salesman? — The  man  that  practices 
the  principles  of  salesmanship  is  «  salesman.  In  or- 
der to  come  within  this  classification  he  does  not  need 
to  face  prospective  customers  in  person.  He  is  a  sales- 
man if  he  has  any  part  in  the  sale  of  goods.     The  owner 

136 


PRINCIPLES  OF  SALESMANSHIP 


187 


of  a  manufacturing  plant  is  a  salesman  if  he  shares  in 
the  formulation  of  selling  policies.  The  president  of  a 
railroad  company  is  a  salesman  if  he  exercises  super- 
vision over  the  sale  of  its  services.  The  general  sales 
manager  of  any  organization  is  certainly  a  salesman  if 
he  directs  the  activities  of  thrse  who  finally  face  the 
customers;  and  so  are  his  f  istants  and  subordinates 
ail  the  way  down  the  line  lo  the  men  that  actually  turn 
in  the  orders. 

The  efficient  advertiser  who  uses  advertisements  to 
aid  him  in  influencing  people  to  buy  his  goods  must 
practice  the  principles  of  salesmanship,  and  the  man 
that  can  sell  goods  by  mail  without  any  direct  personal 
contact  with  his  customers  is  probably  the  highest  type 
of  the  successful  salesman.  The  manufacturer,  the 
jobber,  and  the  retail  merchant  are  all  salesmen  irre- 
spective of  whether  they  actually  sell  goods  themselves 
or  simply  direct  the  selling  organizations  that  do  dis- 
pose of  their  merchandise.  The  retail  clerk  may  be 
just  as  good  a  salesman  as  the  traveling  representative 
of  the  jobber.  Any  one  who  sells  goods  or  who  in  any 
way*  directs  their  sale  is  a  salesman,  and  the  word  is 
also  rightly  applied  to  the  promoter — ^the  man  who  sells 
ideas,  who  organizes  industries,  and  is  successful  in  giv- 
ing a  market  value  to  his  mere  hopes  and  expectations. 

Everyone  who  engages  in  the  activities  of  salesman- 
ship in  any  way  must,  in  a  measure,  practice  the  same 
principles  and  possess  the  same  qualifications.  In  or- 
der to  discuss  these  general  principles  and  qualifica- 
tions, however,  it  is  necessary  to  have  in  mind  an  in- 
dividual that  may  be  termed  the  typical  salesman.  He 
is  the  man  that  meets  his  customers  face  to  face,  and 
upon  whom  the  final  responsibility  depends  for  success 
or  failure  in  the  great  majority  of  business  enterprises. 


138 


SELLING  AND  BUYING 


His  personal  problems  include  those  of  all  the  other 
factors  in  selling,  and  his  qualifications  are  the  measure 
of  those  that  all  the  others  must  possess. 

Every  seUing  method,  every  sales  department  organi- 
zation nmst  ultimately  dejjend  for  actual  results  upon 
the  man  for  whose  guidance  the  selling  methods  have 
been  adopted  and  the  sales  organization  has  been  de- 
veloped. 

119.  Steps  in  a  sale. — Because  personal,  face-to-face 
solicitation  of  a  customer  is  the  most  common  form  of 
salesmanship,  and  because  it  best  illustrates  all  of  the 
principles  of  the  science,  we  shall  discuss  the  problems 
of  salesmanship  with  particular  reference  to  a  sale  in 
which  salesman  and  customer  come  into  direct  personal 
contact.     The  modifications  that  are  necessary  to  adapt 
the  general  principles  to  other  methods  of  selling  will  be 
clearly  evident  in  most  cases  without  any  special  refer- 
ence being  made  to  them.     In  every  sale  it  is  generally 
conceded  that  there  are  four  distinct  steps:  attracting 
the  customer's  attention,  arousing  his  interest,  creating 
in  him  a  desire  to  buy,  and  inducing  him  finally  to  take 
the  action  that  is  necessary  to  close  the  sale.     It  is  not 
our  purpose  to  consider  in  detail  the  methods  of  ac- 
complishing these  four  steps,  but  rather  to  emphasize 
the  importance  of  suitable  training  in  the  methods 
necessary  to  accomplish  them  by  showing  the  connection 
between  the  steps  in  every  sale. 

120.  Attracting  attention.— li  is  not  by  chance  that 
a  possible  customer  gives  his  attention  to  the  salesman 
who  wishes  to  sell  him  something.  The  business  man 
whose  patronage  is  worth  the  most  has  no  time  to  waste. 
He  is  frequently  called  upon  to  listen  to  many  different 
salesmen's  propositions  every  day,  and  he  is  often  un- 
able or  unwilling  to  grant  every  demand  upon  his  time. 


PRINCIPLES  OF  SALESMANSHIP 


139 


In  !"""  <  stablishments  buyers  make  it  a  rule  to  receive 
sai--:.Acn  at  a  certain  hour  and  to  give  every  salesman  a 
hearing.  In  the  majority  of  cases,  however,  the  sales- 
man does  not  have  such  easy  access  to  the  attention  of 
the  customer,  and  the  buyer's  attention  can  not  be  se- 
cured unless  the  salesman  first  directs  his  careful  efforts 
toward  that  immediate  end. 

The  method  in  each  instance  may  differ;  but,  whether 
the  fact  is  recognized  by  the  salesman  or  the  buyer, 
there  is  always  some  definite  reason  why  the  "prospect" 
gives  the  salesman  his  attention.  It  is  not  enough,  how- 
ever, that  the  salesman  should  secure  the  buyer's  at- 
tention to  himself.  For  the  purpose  of  the  sale,  the 
only  attention  that  is  worth  while  is  the  attention  that 
makes  the  buyer  willing  to  talk  business  or  to  listen  to 
the  salesman's  business  proposition.  The  personality 
of  the  salesman  rather  than  the  attractivene-^'?  of  his 
offer  is  frequently  the  force  that  first  inouoes  the 
customer  to  listen  to  him,  but  if  this  is  the  means  used 
to  secure  attention,  it  is  absolutely  necessary  to  transfer 
the  buyer's  attention  from  the  salesman  to  the  article 
that  is  to  be  sold  before  any  sale  can  result.  It  is  for 
this  reason  that  the  quiet,  undemonstrative  salesman  is 
usually  more  efficient  than  the  one  with  a  loud  voice, 
strong  language,  and  exaggerated  gestures.  It  is  easy 
for  the  buyer  to  transfer  his  attention  from  the  per- 
sonality of  the  salesman  to  the  proposition  that  is 
offered  if  the  man  that  approaches  him  is  quiet  in  man- 
ner, but  it  is  difficult  in  the  case  of  the  demonstrative 
salesman  because  his  personality  is  such  that  it  can  never 
l)e  subordinated  to  any  other  factor  in  the  sale. 

There  are  countless  methods  of  securing  attention; 
every  salesman  has  his  own  methods  and  every  sale  pre- 
sents its  own  problems.     The  ability  to  read  character 


140 


SELLING  AND  BUYING 


and  the  possession  of  initiative  are  the  two  qualities  that 
are  of  most  assistance  to  the  salesman  in  determining 
the  proper  method  for  any  particular  sale.     The  man- 
ner of  g'-eeting  the  customer  has  much  to  do  with  the 
matter  of  attracting  attention.     Frequently  it  is  ad- 
visable to  introduce  the  conversation  by  talking  about 
some  subject  not  directly  connected  with  the  business 
in  hand.     It  has  already  been  suggested  that  approach- 
ing the  customer  on  his  "blind  side" — getting  his  con- 
fidence by  showing  the  salesman's  interest  in  him  and 
in  the  things  that  interest  him  before  the  subject  of 
business    is   introduced — is   valuable   in    securing   the 
buyer's  attention.     The  use  of  humorous  stories  and 
references  to  news  items  of  the  day  have  this  purpose. 
It    should    always    be    remembered,    however,    that 
attention  secured  by  such  irrelevant  means  must  be 
completely  transferred  from  the  alien  topic  of  conversa- 
tion to  the  particular  business  proposition  that  the  sales- 
man wants  to  present  before  there  is  any  possibility  of 
making  a  sale.    Therefore,  wherever  possible,  it  is  to 
the  salesman's  advantage  to  use  some  method  of  intro- 
duction that  will  definitely  and  immediately  attract  the 
customer's  attentiwi  to  the  article  the  salesman  wants  to 
sell.     A  new  city  salesman  was  employed  by  a  specialty 
house  that  sold  patented  mouse-traps  to  retail  dealers. 
The  new  man  knew  only  the  stereotyped  forms  of  in- 
troduction, and  he  approached  every  buyer  with  the 
same  formula:     "Good  morning,  Mr.   Smith.     I  am 
Mr.  Brown,  representing  the  Great  Northern  Specialty 
Company.    I  have  an  article,"  but  in  the  majority  of 
cases  he  got  no  further,  because  he  had  wholly  failed  to 
secure  the  busy  merchant's  attention.     He  reported  his 
difficulty  to  the  sales  manager,  who  resolved  to  go  out 
with  him  and  see  wherein  the  trouble  lay. 


PRINCIPLES  OF  SALESMANSHIP 


141 


The  sales  manager  witnessed  one  of  the  salesman's 
ineffectual  attempts  to  secure  a  hearing,  and  he  de- 
termined to  make  the  next  approach  himself,  while  the 
salesman  simply  observed  his  methods.     In  the  next 
store  the  sales  manager  approached  the  buyer,  and  with- 
out a  word  of  introduction  simply  placed  the  mouse- 
trap in  his  hands.     It  was  an  ingenious  contrivance, 
and  that  fact,  together  with  the  unusual  method  of  pre- 
senting the  proposition,  immediately  secured  the  cus- 
tomer's attention.     A  brief  statement  of  prices  and  prof- 
its was  all  that  was  necessary  to  close  the  sale.     At- 
tention was  directly  and  forcibly  attracted  to  the  article 
to  be  sold  rather  than  to  the  personality  of  the  sales- 
man; and  in  many  cases  this  is  the  best  method  to  pur- 
sue. 

121.  Arousing  interest— Interest  is  simply  sus- 
tained attention.  If  a  customer  can  be  induced  to  give 
more  than  momentary  attention  to  a  salesman's  prop- 
osition, he  has  had  his  interest  aroused  in  it.  The  se- 
cret of  holding  attention  and,  therefore,  of  arousing  in- 
terest, is  to  present  a  proposition  continually  in  a  new 
light.  No  one  can  give  attention  to  a  single  thought 
or  idea  for  more  than  a  very  brief  period  of  time. 

The  first  idea  must  be  immediately  developed  if  the 
attention  is  to  be  held.  The  characteristic  feature  of 
this  second  step  in  a  sale  is  the  salesman's  detailed  de- 
scription of  his  proposition.  Each  point  that  is 
brought  out  focuses  the  customer's  attention,  and  his 
interest  is  thereby  aroused  in  the  proposition  as  a  whole. 
The  description  of  the  article  to  be  sold,  of  its  construc- 
tion, uses,  and  advantages,  should  be  definite  and  de- 
tailed. The  use  of  general  terms  is  sometimes  sufficient 
to  secure  attention,  but  if  interest  is  to  be  aroused,  the 
salesman  must  abandon  generalities  and  use  ovly  specific 


U2 


SELLING  AND  BU\  ING 


language.  The  use  of  questions  is  permissible,  but  they 
sliould  be  such  as  to  aid  rather  than  to  interrupt  the 
logical  development  of  the  salesman's  proposition.  If 
the  customer  can  be  made  to  answer  "Yes"  or  "No," 
his  interest  will  be  increased,  because  his  attention  is 
thereby  directed  specifically  to  particular  points,  and 
his  final  assent  to  the  salesman's  conclusion  follows  as 
a  natural  result  of  his  assent  to  the  several  parts  of  the 
selling  talk. 

If  the  article  that  is  being  sold  is  such  that  a  dem- 
onstration of  its  construction  and  uses  is  possible,  the 
salesman  has  a  great  advantage  if  he  is  given  an  op- 
portunity to  show  it  to  the  customer  and  to  make  the 
actual  article  supplement  and  illustrate  his  spoken  de- 
scription of  its  merits.     Nothing  is  so  calculated  to 
arouse  interest  as  an  actual  demonstration.     It  empha- 
sizes points  as  no  mere  statement  of  them  can  do,  and 
the  constant  succession  of  things  of  interest  that  the 
customer  can  see  for  himself  makes  it  easier  to  retain 
his  interest  than  when  the  salesman  has  to  depend  on  his 
own  powers  of  description  for  the  constant  presenta- 
tion of  new  points.     No  description  is  effective  unless 
it  appeals  to  the  customer's  self-interest.     He  must  be 
shown  how  the  purchase  of  the  article  will  increase  his 
happiness,  comfort,  or  profit,  or  the  happiness,  comfort, 
or  profit  of  those  whose  welfare  is  of  gi-eat  importance 
to  him. 

It  is  essential  for  the  salesman  to  get  the  customer's 
point  of  view;  he  must  present  the  features  of  the  prop- 
osition that  will  appeal  to  the  customer— not  necessarily 
those  that  appeal  to  the  salesman.  There  are  ahnost  as 
many  ways  of  arousing  interest  as  there  are  of  attract- 
ing attention,  and  the  proper  method  to  use  in  each  case 
depends  on  the  peculiar  characteristics  of  the  salesman, 


PRINCirLES  OF  SALESMANSHIP 


143 


the  article  to  be  sold,  and  the  customer.  In  all  cases, 
however,  an  adequate  description  of  the  article  must 
have  some  place  in  the  interest-arousing  process,  and 
the  most  successful  salesmen  are  those  who  can  describe 
their  propositions  concisely,  graphically,  and  forcibly. 
122.  Creating  desire. — It  is  obvious  that  attention  to 
a  salesman's  selling  talk,  and  interest  in  what  he  is  talk- 
ing about  can  not  in  themselves  induce  a  customer  to 
make  the  purchase.  He  mu'^t  be  made  to  desire  the 
goods;  otherwise  both  of  th(  ^jreceding  steps  will  have 
l)een  taken  in  vain."  This  fact  is  so  evident  that  no 
elaboration  of  it  is  necessary.  The  dictionary  says  that 
desire  is  the  "wish  to  obtain"  a  thing,  and  the  word  has 
this  meaning  in  salesmanship.  The  "wish  to  obtain," 
however,  is  not  to  be  confused  with  the  determination 
to  obtain.  The  latter  is  the  last  step  in  selling;  there 
must  be  desire  before  there  can  be  determination. 

In  some  cases,  of  course,  the  customer  naturally  de- 
sires the  article  that  is  presented  for  his  consideration, 
without  any  effort  on  the  part  of  the  salesman  to  create 
the  desire.     The  desire  must  be  present  in  some  form, 
however,   before   the   sale   can   proceed   any   further. 
If  it  is  necessary  for  the  salesman  to  create  it,  what 
methods  is  he  to  employ?    As  in  the  case  of  attracting 
attention  and  arousing  interest,  the  methods  of  creating 
desire  are  as  various  as  the  characteristics  of  the  articles 
that  are  sold,  the  personalities  of  the  men  who  sell  them, 
and  the  peculiarities  of  the  prospective  customers.     A 
few   general   principles,   however,    are   suggestive   of 
methods  of  procedure.     Just  as  sustained  attention  de- 
\  elops  into  interest,  so  interest  if  properly  nurtured  can 
be  developed  into  desire,  and  the  methods  of  arousing 
interest  are  largely  the  methods  of  creating  desire. 
Continued  presentation  of  the  merits  of  the  ^rtiQle  to 


Ui 


SELLING  AND  BUYING 


be  sold  is  necessary.  The  customer  must  be  convinced 
that  its  purchase  would  conduce  to  his  pleasure,  profit, 
or  gratification,  or  that  it  would  be  desirable  from  the 
standpoint  of  his  employer.  Argument  may  be  used, 
but  so  sparingly  as  not  to  antagonize  the  buyer  or  to 
make  him  think  that  his  wishes  and  his  interests  are 
not  the  chief  factor  in  the  salesman's  desire  to  make 
the  sale.  The  best  method  of  argument  is  i:  display  of 
the  article  and  the  logical  presentation  of  its  strong 
selling  points  in  such  a  manner  as  to  appeal  to  the  pe- 
culiar needs  of  the  buyer. 

Suggestion  has  a  most  important  part  in  the  creation 
of  desire.  It  has  been  said  that  we  like  to  believe  that 
we  are  reasonable  beings,  but  that  we  act  more  often  be- 
cause the  action  has  been  suggested  to  us  than  because 
we  have  determined  to  do  it  through  a  process  of  reason- 
ing. The  salesman  should  utilize  this  valuable  principle. 
His  reasoning  and  logical  presentation  of  selling  points 
are  effective,  but  reasoning  should  be  supplemented 
by  tactful  suggestions  that  will  make  the  customer  think 
that  he  has  from  the  first  desired  the  article,  without 
having  been  greatly  influenced  by  the  selling  methods 
of  the  salesman.  No  one  likes  to  admit  that  his  opin- 
ions have  been  changed  by  the  statements  of  another, 
and  the  efficient  salesman,  instead  of  relying  too  much 
on  logical  reasoning,  suggests  the  things  that  make  the 
customer  alter  his  unfavorable  ideas,  and  that  ultimately 
create  in  him  a  desire  to  purchase. 

123.  Inducing  resolution  and  inciting  to  action. — At- 
tention, interest,  and  desire  are  simply  states  of  mind. 
Resolution  to  buy  involves  decision  and  action.  There 
are  many  salesmen  who  are  able  to  carry  the  customer 
through  the  first  three  steps,  but  who  seem  to  be  un- 
able to  close  the  sale.     In  some  organizations  there  are 


PRINCIPLES  OF  SALESMANSHIP 


145 


men  who  are  called  "closers,"  and  who  are  definitely 
assigned  to  the  task  of  bringing  about  action  in  the 
case  of  "prospects"  whom  other  salesmen  have  worked 
up  to  the  point  of  interest  or  desire,  but  whom  they 
are  unable  to  bring  to  the  point  of  actually  placing 
the  order.  The  ability  to  "close"  is  the  most  valuable 
item  in  the  salesman's  equipment.  Unaided  he  can  not 
make  sales  unless  he  can  inspire  action  as  well  as  in- 
duce the  proper  mental  attitude  toward  his  proposition. 
A  man  may  desire  an  article  greatly  and  yet  not  be 
willing  or  able  to  purchase  it.  A  poor  man  may  want 
an  expensive  automobile  very  greatly,  and  yet  not  have 
the  resources  to  buy  it.  In  most  sales,  however,  the 
salesman  does  not  approach  buyerit  who  he  thinks  are 
unable  to  take  advantage  of  his  proposition,  and  be- 
cause of  that  fact  it  is  often  true  that  desire,  if  it  is 
strong  enough,  can  be  developed  into  resolve  to  purchase 
and  definite  action  toward  that  end. 

In  taking  this  final  step  in  the  sale — in  inspiring  action 
— ^the  salesman  must  meet  the  objections  of  the  customer. 
If  the  salesman  has  accomplished  the  preceding  steps, 
he  has  presented  his  entire  case,  and  he  has  now  simply 
to  play  the  part  of  the  debater  who  has  presented  all  his 
own  points  and  who  merely  emphasizes  them  in  his  re- 
buttal of  the  points  that  are  presented  by  his  opponent. 
The  customer  urges  the  greater  necessity  of  making 
other  purchases,  or  the  inexpediency  of  investment.  He 
acknowledges  the  value  of  the  article  but  prefers  to  de- 
lay buying  it,  or  he  interposes  any  one  of  the  countless 
other  objections  that  every  salesman  is  familiar  with 
and  has  to  face.  The  salesman  meets  them  courteously 
and  positively  by  suggestion,  by  exciting  the  customer's 
imagination,  by  emphasizing  his  previous  points  and 
phrasing  them  so  as  to  suit  the  conditions  mentioned 

III— 10 


146 


SELLING  AND  BUYING 


by  the  buyer.  He  lets  the  customer  do  most  of  the 
talking,  but  he  watches  for  every  opportunity  to  in- 
terpose a  conclusive  point  that  will  meet  the  buyer's 
objection  to  immediate  action.  The  salesman  is  often 
forced  to  employ  direct  argumentation  in  this  last  step 
in  the  sale,  and  it  is  entirely  permissible  for  him  to 
do  so  when  the  tactics  of  the  buyer  demand  it;  but  the 
salesman  should  never  lose  sight  of  the  necessity  of 
retaining  the  customer's  good-will  and  of  so  phrasing 
his  arguments  that  the  match  of  wits  will  not  degener- 
ate into  mere  controversy  and  dispute. 

There  is  a  "psychological  moment"  when  further  talk 
is  useless  and  when  the  buyer  is  ready  for  the  definite 
suggestion  to  put  his  name  "on  the  dotted  line."  Some 
salesmen  fail  to  recognize  this  moment.  They  talk  a 
buyer  into  a  sale  and  then  they  talk  him  out  of  it  again. 
To  recognize  the  moment  for  action  when  it  arrives  is 
often  the  most  difficult  feature  in  the  sale.  Common 
sense,  experience,  a  thorough  knowledge  of  human 
nature,  and  careful  attention  to  everything  a  buyer  says 
and  does  are  the  things  that  give  a  salesman  the  ability 
to  stop  talking  when  he  has  said  enough,  and  to  present 
the  order  blank  for  the  buyer's  signature. 

To  bring  about  resolution  and  action  is  the  final  pur- 
pose of  every  sale;  without  it  all  the  other  steps  are 
worthless.  But  if  attention  has  been  properly  at- 
tracted, interest  aroused,  and  desire  created,  and  if  the 
salesman  has  used  intelligence  in  selecting  his  prospect, 
desire  can  be  so  strengthened  and  objections  so  met 
that  the  customer  Mrill  take  the  desired  action  and  the 
actual  sale  will  result. 

124.  Importance  of  steps  in  a  saL,. — Mr.  A.  F. 
Sheldon  was  probably  the  first  to  point  out  the  presence 
of  these  four  steps  in  every  sale.     They  are  now  recog- 


PRINCIPLES  OF  SALESMANSHIP 


147 


iiized  by  most  of  the  investigators  of  the  science  of  sales- 
manship.    It  is  not,  however,  to  be  inferred  from  the 
emphasis  that  is  placed  upon  the  steps  in  a  sale,  that 
tliey  are  to  be  consciously  borne  in  mind  by  every  sales- 
man whenever  he  faces  a  customer.     The  world's  sales- 
men made  successful  sales  for  many  centuries  before 
the  steps  were  heard  of,  and  the  experienced  salesman 
of  to-day  seldom  has  definitely  in  mind  the  necessity  of 
surmounting  the  various  steps  in  their  logical  order 
whenever  he  attempts  to  make  a  sale.    This  does  not 
alter  the  fact  that,  whether  the  salesman  is  aware  o^ 
it  or  not,  if  the  sale  is  to  be  successful,  the  buyer  must 
be  made  to  give  his  attention,  he  must  take  an  interest 
in  the  proposition,  he  must  experience  desire  to  acquire 
the  goods  that  are  offered  to  him,  and  he  must  make  a 
definite  resolution  to  buy.     Sales  can  be  made  without 
any  thought  being  given  to  these  steps,  but  if  a  sales- 
man studies  them  and  learns  some  of  the  methods  that 
are  calculated  to  enable  him  to  surmount  each  one,  he 
will  gradually  find  himself  applying  the  methods  un- 
consciously whenever  he  is  in  a  situation  where  they 
might  be  helpful. 

The  value  of  the  steps  in  the  study  of  salesmanship 
is  comparable  to  the  value  of  the  fundamental  princi- 
ples in  the  study  of  any  science.  A  man  who  analyzes 
his  activities  and  who  knows  why  he  applies  certain 
methods  is  bound  to  apply  them  with  greater  eflPective- 
iiess  and  discrimination  than  the  man  who  has  other- 
wise the  same  equipment  but  whose  operations  are 
directed  only  by  intuition  or  by  a  system  of  unrelated 
bits  of  knowledge  based  upon  the  unorganized  results 
of  his  own  experience  or  the  experience  of  others. 


CHAPTER  XIII 


QUALITIES  ^F  THE  SALESMAN 

125.  Factors  in  a  sale. — We  have  discussed  sales- 
manship from  the  point  of  view  of  the  steps  that  must 
be  surmounted  in  every  successful  sale.  The  subject 
may  also  be  considered  from  the  point  of  view  of  the 
^factors  that  are  present  in  all  sales.  These  factors  are 
the  salesman,  the  article  to  be  sold,  and  the  customer. 
If  a  salesman  is  to  make  the  greatest  success  in  his  pro- 
fession, he  must  be  trained  not  only  in  the  four  steps 
and  in  the  methods  of  surmounting  them,  but  he  must 
also  develop  the  proper  relationship  to  each  of  the  fac- 
tors in  a  sale.  The  two  points  of  view  are  so  closely 
related  that  it  is  impossible  to  separate  them  in  his  train- 
ing, for  the  development  of  the  proper  relationship  to 
the  factors  is  simply  for  the  purpose  of  enabling  him  to 
carry  a  sale  through  the  four  essential  steps. 

126.  Personality  of  salesman. — The  first  factor  is  the 
salesman.  The  development  of  the  right  relationship 
of  the  salesman  to  himself  means  simply  the  develop- 
ment of  the  proper  personality — of  the  personal  quali- 
ties that  must  be  possessed  by  the  successful  salesman. 
If  he  possesses  these  qualities,  he  will  unconsciously  as- 
sume the  right  attitude  toward  the  article  to  be  sold  and 
toward  the  customer.  To  consider  the  factors  in  a  sale, 
therefore,  we  have  chiefly  to  consider  the  characteristics 
of  a  successful  salesman  and  the  possibility  of  develop- 
ing the  necessary  qualities.  We  shall  consider  in  de- 
tail some  of  the  more  important  of  these  qualities.    If 

148 


QUALITIES  OF  THE  SALESMAN 


149 


tliey  were  all  purely  natural  attributes  and  were  in- 
capable of  development  by  the  man  who  did  not  possess 
them— if  it  were  true  that  a  salesman  is  bom  and  not 
made— a  consideration  of  the  characteristics  of  a  suc- 
cessful salesman  would  be  worthless  to  the  man  who 
aspires  to  success  in  selling. 

As  has  been  previously  pointed  out,  however,  the  old 
idea  about  the  mystical  nature  of  success  in  salesman- 
ship has  been  exploded.  Success  in  this  profession  as  in 
all  others  rests  on  certain  principles.  It  ha§  been 
proved  to  be  possible  for  a  man  to  obtain  training  in 
these  principles,  and,  if  he  has  inclination  for  the  work 
and  a  fair  equipment  of  brains  and  will  power,  to  ac- 
quire the  qualities  that  will  bring  him  at  least  a  f"ir  de- 
gree of  success. 

In  the  following  presentation  of  some  of  the  charac- 
teristics of  an  efficient  salesman,  the  word  salesman  is 
used  in  the  broadest  possible  sense.     It  refers  to  any- 
one, man  or  woman,  who  has  any  part  in  the  distribution 
of  merchandise.     To  make  the  discussion  concrete,  how- 
ever, we  shall  have  in  mind  the  individual  who  may  be 
termed  the  typical  salesman— the  man  who  actually 
faces  customers,  who  usually  travels  from  town  to  town, 
and  upon  whom  the  success  of  most  selling  organiza- 
tions finally  depends.    He  may  represent  a  manufac- 
turer or  a  jobber,  or  he  may  sell  general  lines  or  special- 
ties by  calling  upon  consumers.    He  may  belong  to 
the  largest  class  of  all— the  great  army  of  sales-people 
who  distribute  through  retail  stores  more  than  ninety 
per  cent  of  the  staple  goods  that  are  consumed  in  this 
country.    In  all  of  these  cases  the  essential  qualities  of 
the  successful  salesman  are  the  same. 

127.  Inclination  for  work. — No  one  should  consider 
entering  the  profession  of  salesmanship  unless  he  feels 


150 


SELLING  AND  BUYING 


impelled  to  do  so  by  a  love  of  the  work.  Too  often 
in  the  past,  salesmanship  has  been  the  last  resort  of 
the  unsuccessful  man  and  the  chance  choice  of  the  man 
with  no  definite  purixwe  in  life.  It  has  been  under> 
taken  because  it  seemed  to  offer  easy  work  which  re- 
quired no  training.  Another  false  incentive  to  enter 
the  profession  is  tlie  glamour  with  which  the  inex- 
perienced are  likely  to  invest  the  life  of  the  traveling 
salesman.  The  clerk  in  a  retail  store  meets  the  job- 
bers' and  manufacturers'  representatives  that  come  to 
sell  to  his  employer,  and  the  variety  of  their  life  ap- 
peals to  him  in  contrast  to  the  monotony  of  his  own 
work.  Or  the  minor  clerk  in  a  jobbing  or  manufactur- 
ing establishment  learns  of  the  salaries  that  are  paid  to 
the  firm's  traveling  representatives,  he  observes  the 
freedom  of  their  movements  when  they  visit  the  home 
office,  and  he  is  impelled  partly  by  envy  and  partly 
by  discontent  with  his  own  work  to  aspire  to  their  posi- 
tions. 

Such  incentives  as  these  do  not  often  bring  success 
in  selling.  No  one  should  undertake  the  profession  of 
salesmanship  who  does  not  feel  that  the  work  of  sell- 
ing is  the  one  work  that  he  wants  to  do.  There  are 
disappointments  in  salesmanship,  there  are  many  dis- 
comforts and  hard,  grinding  labor.  To  bear  up  under 
the  rebuffs,  temporary  failures,  physical  trials,  and 
mental  strain,  the  salesman  must  have  the  sure  foun- 
dation of  love  of  his  work — intense  pleasure  in  the  con- 
stant conflict  of  minds  and  in  the  part  that  the  sales- 
man plays  in  the  great  game  of  business. 

128.  Mental  ability. — The  degree  of  success  that  is 
attained  in  selling,  as  in  anything  else,  depends  largely 
on  the  salesman's  equipment  of  brains  and  will  power. 
For  lack  of  a  better  term  to  indicate  this  essential 


QUAUTIE8  OF  THE  SALESMAN 


151 


equipment,  we  shaU  refer  to  it  m  mental  abibty.  The 
possession  of  quick  wit  is  one  of  the  necessary  natural 
endowments  of  tlie  salesman.  Will  power  can  be 
developed,  but  the  man  who  is  naturally  duU  can  not 
ordinarUy  quicken  his  mental  processes.  He  can  not 
hope  for  success  in  salesmanship  any  more  than  he  can 
hope  for  success  in  any  other  profession.  There  al- 
waVs  has  been  and  there  always  will  be  an  aristocracy 
of  brains,  and  the  successful  salesman  certainly  belongs 
in  that  classification.  . ,      , ,  * 

Inclination  for  the  work  and  a  considerable  amount 
of  mental  abiUty  are  the  necessary  natural  endowments 
that  must  be  possessed  by  the  man  who  wishes  to  be- 
come a  successful  salesman.  They  are  fundamental; 
they  form  the  basis  for  training  in  the  other  quahties 
that  the  salesman  must  possess.  With  inclination  and 
mental  ability  as  a  foundation  it  is  submitted  that  there 
is  none  of  the  qualities  that  are  to  be  discussed  here- 
after that  can  not  be  acquired  and  developed  to  a 
irreater  or  less  extent  by  the  individual  who  u  de- 
termined to  make  himself  efficient  in  the  work  of  sell- 

'"^129.  General  education.— The  high-grade  salesman 
is  an  educated  man.  His  interests  are  broad,  and  he 
is  able  to  talk  intelligently  to  many  men  on  many  sub- 
jects. The  salesman  who  knows  his  own  line  and  noth- 
ing more  is  narrow,  and  his  efficiency  is  limited  by  the 
boundaries  of  his  knowledge.  He  can  not  serve  either 
himself  or  his  employer  to  the  best  advantage,  because 
the  introduction  into  the  selling  interview  of  a  topic  not 
immediately  concerned  veith  the  article  he  is  handbng 
indicates  to  the  buyer  the  mental  limitetions  of  the  sales- 
man and  makes  it  impossible  for  the  latter  to  maintain 
an  attitude  of  equality  with  those  with  whom  he  deals. 


159 


SELLING  AND  BUYING 


There  is  scarcely  any  branch  of  human  knowledge  for 
winch  a  salesman  may  not  at  some  time  have  definite 
use  m  his  business  activities.  The  more  complete  a 
salesman's  education  has  been,  the  greater  are  his  op- 
iwrtunities  to  win  the  confidence  and  respect  of  his 
customers  and  to  increase  the  prestige  and  sales  of  his 
employer  and  of  himself. 

A  salesman  must  be  able  to  express  his  ideas  clearly 
concisely,   and   forcibly.     He  must  possess  conversa- 
tional ability  and  the  conmion  sense  to  talk  to  the  best 
purpose.     This  is  by  no  means  the  same  as  saying  that 
a  salesman  must  be  a  fluent  talker.    The  best  sales- 
men are  not  those  who  talk  the  most,  but  those  who  talk 
less  and  make  every  word  count.     Nearly  every  sales 
manager  can  point  to  men  on  his  staff  who  are  by  no 
means  fluent  talkers,  but  who  possess  the  immensely 
valuable  ability  of  knowing  exactly  the  right  thing  to 
say  at  the  right  time,  and  of  saying  it  in  such  a  way 
that  they  make  the  customer  think  that  the  idea  is  his 
rather  than  the  salesman's.     The  man  who  knows  how 
to  make  the  customer  do  most  of  the  talking  is  in  a 
decidedly  advantageous  position. 

The  power  of  expression-and  of  repression  as  well 
-like  all  the  other  worth-while  attributes  of  a  salesman, 
comes  chiefly  from  long  study  and  training.  There 
may  be  natural  orators  in  the  selling  field,  but  they  are 
at  a  disadvantage  with  the  man  who  has  made  a  care- 
ful study  of  the  things  he  should  say  in  any  given  cir- 
cumstance, and  of  the  exact  manner  in  which  he  should 
say  them  m  order  to  gain  the  desired  end. 

130.  //^«///,.-IIeaUh  is  one  of  the  foundation  stones 
of  success  11  any  activity.  Illness,  physical  weakness, 
frequently  enforced  absence  from  work,  and  the  lack 
of  Vital  energy  that  always  accompanies  ill-health,  are 


QUALITIES  OF  THE  SALESMAN 


153 


fatal  barriers  to  a  salesman's  success.  Health  is  largely 
a  matter  of  habit.  The  man  who  takes  care  of  him- 
self has  gone  a  long  way  toward  establishing  a  sound 
constitution,  while  the  man  who  is  ca-*^  jss  of  his  body 
and  who  uses  up  his  energy  in  dissipa  ^  must  pay  the 
l)rice  in  failure. 

The  business  world  has  pretty  genera%  abandoned 
the  idea  that  there  is  no  connection  between  what  a  mfui 
is  at  eleven  o'clock  at  night  and  what  he  is  at  eleven 
o'clock  in  the  morning.  The  old-time  "hit  or  miss" 
method  of  selling  concerned  itself  little  with  these 
things.  If  a  salesman  turned  in  a  fair  volume  of  sales, 
his  personal  faults  and  excesses  were  condoned.  That 
is  not  the  attitude  of  the  sales-manager  of  to-day.  He 
is  not  satisfied  with  a  portion  of  a  salesman's  efficiency. 
He  demands  maximum  results,  and  the  salesman  who 
remains  in  his  employ  must  take  every  precaution  to 
conserve  every  ounce  of  energy  he  may  possess.  No 
man  can  be  intemperate  in  anything  and  expect  to 
develop  himself  to  the  utmost.  The  keen,  fighting, 
successful .  salesman  of  to-day  is  clear-eyed  and  clear- 
brained.  He  achieves  the  results  he  sets  out  to  accom- 
plish because  he  is  absolute  master  of  himself,  and 
mastery  of  self  gives  him  mastery  of  others. 

181.  Importance  of  appearance. — The  importance  of 
the  salesman's  dress  and  general  appearance  has  been 
already  considered  in  our  discussion  of  the  external 
characteristics  that  the  sales-manager  takes  into  con- 
sideration when  he  interviews  an  applicant  for  a  selling 
])osition.  Salesmen  are  well-dressed  because  their 
business  demands  it.  Customers  like  to  deal  with  pros- 
l)erous  houses.  The  salesman  represents  the  house, 
and,  as  the  outward  symbol  of  prosperity  is  good  ap- 
parel, it  is  essential  for  the  salesman  to  dress  as  well  as 


154 


SELLING  AND  BUYING 


his  income  will  permit.  But  aside  from  the  necessity 
of  presenting  a  good  appearance  for  the  benefit  of  his 
old  customers,  he  must  have  due  regard  for  the  first 
impression  he  makes  upon  strangers.  The  well-dressed 
man  will  often  secure  the  attention  of  a  "prospect" 
where  the  man  of  careless  appearance  would  utterly  fail 
to  secure  a  hearing.  Good  clothes  give  a  salesman  an 
advantage  because  they  create  a  sentiment  in  his  favor, 
and  for  that  reason  they  are  of  great  importance  in 
the  first  step  in  every  sale — securing  the  customer's  at- 
tention. 

182.  Honesty.— Tht  man  who  is  unable  or  unwilling 
to  be  absolutely  honest  has  no  place  in  salesmanship. 
It  is  true  that  there  is  no  permanent  place  in  any  busi- 
ness for  a  dishonest  man,  but  lack  of  honesty  is  es- 
pecially fatal  in  selling.     A  salesman  is  peculiarly  liable 
to  temptations.     He  is  so  much  his  own  master  in  the 
details  of  his  work  that  there  are  many  opportunities 
for  dishonesty  in  his  relations  with  his  employer.     If  he 
has  an  expense  account,  he  must  be  constantly  on  his 
guard  to  resist  the  temptation  to  "pad"  the  account. 
If  he  makes  reports  that  involve  any  labor  in  their 
compilation,  he  must  be  certain  that  his  information  is 
accurate  and  that  his  method  of  reporting  is  exact.    He 
must  only  seek  credit  for  sales  to  which  he  is  rightfully 
entitled.     He  must  remember  that  his  time  belongs  to 
his  employer,  and  that  the  theft  of  an  hour  is  as  dis- 
honest and  as  costly  for  his  employer  as  the  actual  theft 
of  money. 

If  he  understimates  the  importance  of  these  things 
and  allows  the  line  between  right  and  wrong  to  be- 
come blurred,  he  will  soon  find  himself  in  such  a  maze  of 
dishonest  habits  that  his  efficiency  will  be  at  an  end. 


QUALITIES  OF  THE  BAILSMAN 


l.W 


The  standard  of  business  ethics  is  being  saised.  Ac- 
tions that  were  condoned  not  so  many  years  ago  are  no 
longer  tolerated.  Just  as  the  employer's  responsibility 
to  the  employe  is  being  increased,  so  has  the  con- 
scientious employe  changed  his  attitude  toward  his  em- 
ployer. 

The  salesman,  more  perhaps  than  any  other  employe, 
is  the  actual  representative  of  the  man  who  employs 
him.  If  he  is  dishonest,  his  customer  has  reason  to  be- 
lieve that  dishonesty  is  the  policy  of  his  house.  If  he 
misrepresents  his  goods,  his  employer  must  bear  the  re- 
sponsibility. Such  methods  are  not  tolerated  by  the 
ri^t  sort  of  employers — and  the  other  sort  can  not 
buy  the  services  of  self-respecting  men.  Honesty  with 
himself,  with  his  employer,  and  with  his  customers  is 
absolutely  essential  to  a  salesman's  success. 

188.  Sincerity. — It  is  said  that  the  whole  fabric  of 
modern  business  is  based  upon  confidence.  This  is  cer- 
tainly true  of  salesmanship.  Few  sales  are  ever  made 
unless  the  purchaser  has  cotifidence  in  the  goods  and  in 
the  man  who  makes  the  sale.  Nothing  can  so  effectively 
secure  the  customer's  confidence  as  sincerity  on  the  part 
of  the  salesman.  A  salesman  is  severely  handicapped 
if  he  does  not  believe  in  his  work,  if  he  is  not  thoroughly 
convinced  of  the  quality  of  the  article  he  is  selling,  and 
if  he  does  not  feel  absolutely  sure  that  the  sale  will  be 
to  the  mutual  advantage  of  the  purchaser  and  of  him- 
self. If  he  is  not  in  this  state  of  mind,  he  must  simu- 
late sincerity  where  none  exists;  and  the  keen,  experi- 
enced buyer  is  quick  to  detect  dishonesty  either  in  the 
article  itself  or  in  the  attitude  of  the  salesman.  In- 
sincerity breeds  distrust,  and  distrust,  once  aroused,  is 
exceedingly  difficult  to  displace.     If  a  salesman  can  not 


156 


SELLING  AND  BUYING 


"talk"  his  Jine  wiUi  absolute  sincerity,  he  had  better 
change  employers,  because  he  is  carrying  a  handicap 
that  will  seriously  interfere  with  his  success. 

184.  Fidelity.— Fidelity  in  salesmanship  simply 
means  bemg  honest  with  one's  employer.  Loyalty  is 
one  of  the  most  marked  characteristics  of  the  successful 
salesman.  He  realizes  the  full  responsibility  that  at- 
taches to  his  position,  and  he  is  true  to  his  trust.  He 
remembers  always  that  he  is  the  personal  representative 
of  his  employer,  and  he  strives  to  conduct  himself  so 
as  to  brmg  no  dishonor  upon  the  house. 

135.  Co//r/my.— Courtesy  is  one  of  the  first  qualities 
that  a  salesman  must  develop.  His  constant  attitude 
IS  that  of  a  supplicant  for  the  time  and  attention  of 
another.  At  first,  the  customer  almost  inevitably  adopts 
the  attitude  that  he  is  doing  the  salesman  a  favor  in 
hstenmg  to  him.  Since  this  is  the  attitude  of  the  man 
he  IS  seeking  to  interest,  the  salesman  must  adapt  him- 
self to  the  circumstances,  and  win  a  hearing  by  the 
courtesy  of  his  bearing.  He  will  meet  rudeness  and 
discourtesy,  but  at  all  times  he  must  retain  control  over 
himself.  A  single  discourteous  word  or  action  may 
imperil  his  success  in  a  sale. 

The  outward  sign  of  courtesy  is  good  manners. 
Ihey  can  be  acquired  without  price,  and  vet  nothing 
m  the  salesman's  equipment  pays  larger  dividends. 
Good  manners  enable  a  salesman  to  appear  at  his  ease 
even  in  the  most  trying  situations.  The  average  sales- 
man goes  over  the  same  territory  many  times.  If  he 
does  not  make  a  sale  to  a  man  on  one  trip,  he  expects 
to  do  so  on  the  next,  and  the  impression  he  leaves  with 
those  who  have  failed  to  buy  from  him  is  of  great  im- 
portance in  determining  the  character  of  his  future  re- 
ception by  them. 


QUALITIES  OF  THE  SALESMAN 


157 


Politeness  and  good  manners  are  the  outward  expres- 
sion of  courtesy,  but  it  is  possible  for  a  man  to  school 
liimself  to  be  polite  without  possessing  real  courtesy. 
Courtesy  is  something  more  than  mere  manners.  It 
is  one  of  the  moral  qualities  that  are  essential  for  the 
liighest  success  of  the  salesman.  He  should  develop  a 
habit  of  consideration  for  the  people  he  meets  that  will 
make  it  impossible  for  him  to  harbor  a  discourteous 
thought  toward  them,  and  will  render  the  acts  of 
courtesy  unconscious  and  actually  indicative  of  his 
mental  attitude. 

186.  Industry. — Men  have  been  knowii  to  take  up 
the  profession  of  salesmanship  because  they  were  look- 
ing for  light  work.  They  were  disappointed.  They 
either  reconciled  themselves  to  strenuous  labor  very 
shortly,  or  they  ceased  to  be  salesmen.  The  successful 
salesman  works  hard,  all  the  time.  He  does  not  know 
wiiat  "working  hours"  mean.  Day  or  night,  whenever 
tiiere  is  an  opportunity  to  make  a  sale,  he  is  ready  to 
give  himself  wholly  to  the  task  of  selling.  He  works 
all  the  time  because  he  likes  to.  He  is  engaged  in  sales- 
manship because  of  his  love  of  the  work — not  because 
he  is  paid  a  certain  wage  for  so  many  hours  of  labor 
every  day.  He  would  rather  make  a  sale  than  do  any- 
thing else,  and  he  never  thinks  it  a  hardship  to  sacrifice 
}>ersonal  ease  and  comfort  for  the  sake  of  matching  his 
wits  against  those  of  a  possible  purchaser. 

Every  case  is  a  new  problem  to  be  solved,  and  the 
salesman  takes  the  keenest  delight  in  its  solution. 
There  have  been  salesmen — those  of  the  old-fashioned 
variety — ^who  were  inclined  to  let  working  hours  be  de- 
termined by  their  physical  condition  and  mental  moods. 
A  few  days  of  good  results  were  followed  by  several 
days  of  inactivity.     No  salesman  can  work  intermit- 


l.w 


SELLING  AND  BUYING 


tently  now-a-days  and  be  a  success.  The  modem  game 
of  selling  is  played  at  too  rapid  a  pace  to  permit  any 
of  the  players  to  rest  on  their  past  achievements.  They 
must  be  always  up  and  doing-and  the  real  salesman 
needs  but  li  ttle  incentive  to  give  himself  without  reserve 
to  the  absorbing  work  of  his  profession. 

137.  Open-mindedness.—ln  every  occupation  there 
are  some  men  who  think  they  know  all  there  is  to  be 
known  about  their  work.  They  resent  suggestions  from 
others;  new  plans,  new  ideas  have  no  interest  for  them 
and  they  are  satisfied  to  continue  in  the  same  rut  that 
they  have  followed  all  their  lives.  Such  men  are  seldom 
found  m  important  positions.  They  are  never  found 
at  the  head  of  a  sales  force. 

The  successful  salesman  is  essentially  open-minded. 
If  he  is  to  acquire  qualities  that  he  does  not  naturally 
possess,  he  must  ordinarily  learn  what  they  are  from 
the  statements  of  others,  and  he  must  be  willing  to 
accept  the  frank  suggestions  of  those  whose  advice  he 
seeks  regarding  the  defective  portions  of  his  personality. 
He  is  constantly  watching  for  new  methods  of  increas- 
ing his  efficiency.     He  realizes  that  he  is  engaged  in 
one  of  the  most  difficult  of  the  professions,  and  he  knows 
that  there  are  things  he  can  always  learn  about  his  busi- 
ness.   He  reads  business  literature,  and  he  makes  use 
ot  the  information  he  gains  from  that  source.     If  he 
has  a  particularly  hard  selling  problem  to  solve,  he  is 
glad  to  receive  the  aid  of  his  manager  or  a  fellow  sales- 
man.   He  welcomes  letters  of  constructive  criticism, 
and  he  reads  sales  bulletins  and  attends  salesmen's  con- 
ventions with  the  determination  to  get  from  them  every- 
thing  that  can  in  any  way  assist  him  in  developing  his 
efficiency. 

Open-mindedness   is   a    valuable   asset.     It    is   the 


QUALITIES  OP  THE  SALESMAN 


159 


quality  that  keeps  a  man  out  of  a  rut;  and  it  has  been 
truly  said  that  "the  only  difference  between  a  rut  and 
a  grave  is  in  the  width  and  depth." 

188.  Persistence. — Persistence  is  the  quality  that  pre* 
vents  a  salesman  from  becoming  discouraged.  It  is 
based  upon  industry,  courage,  and  patience.  It  en- 
ables a  salesman  to  follow  up  a  "prospect"  month  after 
month  and  year  after  year,  if  necessary,  until  the  sale 
is  finally  made.  The  salesman  must  work  for  the 
future  as  well  as  for  the  present.  The  difficult,  long- 
pending  order  is  usually  more  valuable  than  the  im- 
mediate, easily  secured  one.  The  salesman  must  often 
plan  his  campaign  for  weeks  and  months  in  advance. 
Every  detail  must  be  carefully  worked  out,  and  then  he 
must  persistently  follow  his  program  until  the  last 
barrier  is  removed  and  the  sale  is  effected. 

There  is  no  quick  and  easy  road  to  success  in  sell- 
ing. The  man  who  has  the  necessary  training  and  who 
plods  persistently  along  is  the  man  who  gets  the  orders. 
Mere  brilliancy  in  salesmanship  is  notoriously  unreliable. 
The  persistent  salesman  who  is  always  at  work  and  who 
never  gives  up  is  the  one  whose  order  book  contains 
the  most  entries. 

189.  Tact. — A  salesman  without  tact  is  an  impossi- 
bility. He  would  antagonize  a  customer  more  fre- 
quently than  he  would  secure  his  order.  No  amount  of 
inclination  and  training  could  bring  a  salesman  success 
if  the  development  of  this  important  quality  had  been 
neglected.  Tact  is  the  attribute  that  enables  a  man  to 
deal  with  others  without  friction.  It  enables  him  to 
adapt  himself  to  circumstances  and  to  do  the  right  thing 
in  the  right  place.  The  lack  of  tact  is  largely  a  matter 
of  thoughtlessness  and  selfishness. 

To  develop  the  quality  of  tact,  it  is  necessary  for  a 


160 


SELLING  AND  BUYING 


salesman  to  plan  his  selling  talk  with  infinite  care,  to 
think  of  the  customer  instead  of  himself,  and  to  use 
good  judgment  and  common  sense  to  guide  him  in  all 
his  words  and  actions.     The  tactful  salesman  always 
looks  beyond  the  immediate  action,  and  sees  what  its 
results  will  be.     He  does  not  force  himself  upon  a 
dealer's  attention,  if  the  latter  is  obviously  too  busy  to 
talk  to  him.     He  avoids  such  topics  of  conversation 
with  his  customers  as  politics  and  religion,  which  are 
likely  to  lead  to  profitless  argument.     He  humors  his 
customers'  prejudices— when  they  are  not  antagonistic 
to  his  goods— and  conforms  his  manner  and  speech  to 
the  known  peculiarities  of  the  man  with  whom  he  is 
dealing.     He  discovers  his  customers'  likes  and  dislikes, 
records  them  systematically,  and  bases  his  selling  talks 
upon  this  information.     He  knows  when  to  talk,  and  he 
knows  when  he  has  said  enough  and  it  is  time  to  leave 
the  customer  or  to  close  the  sale.    He  talks  about  his 
own  goods— not  his  competitors',  and  he  carefully  avoids 
suggesting  in  any  way  that  the  "prospect"  has  not  used 
good  judgment  in  purchasing  from  another  house.    He 
is  a  business  diplomat.     He  guards  his  tongue  and  ac- 
tions with  the  utmost  care,  and  he  gains  a  desired  end 
in  a  manner  calculated  to  create  the  least  friction  and 
to  pave  the  way  for  future  cordial  relations. 

140.  Initiative.— There  are  three  classes  of  em- 
ployes: the  first  need  to  be  told  to  do  a  thing  but  once; 
the  second  have  to  be  told  three  or  four  times,  and  then 
there  is  no  certainty  that  they  will  carry  out  instructions; 
the  third  do  the  things  that  need  to  be  done,  without  be- 
ing told.  They  possess  initiative.  The  ability  to  carry 
out  instructions  is  valuable,  but  the  ability  to  anticipate 
instructions  and  to  do  things  on  one's  own  initiative  is 
immensely  more  valuable. 


QUALITIES  OF  THE  SALESMAN 


161 


There  are  many  salesmen  who  are  continually  asking 
the  home  office  for  help  and  advice  in  particular  sales. 
If  they  are  men  who  can  carry  out  instructions,  their 
manager  is  glad  to  give  them  the  necessary  assistance; 
but  such  men  are  not  the  ones  the  management  sends 
on  important  missions  or  puts  in  charge  of  the  best  ter- 
ritories. The  typical,  high-grade  salesman  is  self-re- 
liant and  confident  of  his  ability  to  handle  any  situa- 
tion that  may  arise.  He  is  not  egotistical  or  unwilling 
to  accept  aid  when  aid  is  necessary,  but  he  is  so  trained 
in  the  principles  of  his  profession  that  he  can  usually 
apply  them  immediately  under  any  circumstances  with- 
out delaying  action  while  he  seeks  advice,  when  delay 
means  a  possible  loss  of  the  sale.  The  salesman  with 
initiative  scents  possible  business  as  a  newspaper  re- 
porter scents  news.  He  takes  advantage  of  unusual 
conditions  to  secure  unusual  results,  and  he  never  loses 
an  opportunity  to  act  with  decision  and  judgment 
when  the  interests  of  his  employer  are  at  stake.  In 
short,  his  work  for  his  employer  is  as  self-reliant  and 
constructive  as  it  would  be  if  he  were  working  for  him- 
self. 

141.  Knowledge  of  the  husinesa. — In  a  profession  in 
which  there  are  so  many  qualities  whose  possession 
measures  the  worker's  success,  it  is  impossible  to  pick 
out  one  or  more  whose  importance  over-shadows  that 
of  any  of  the  others.  It  is  certainly  true,  however,  that 
a  man  may  possess  all  the  qualitks  that  have  been  men- 
tioned, and  yet  not  be  a  salesman  if  he  has  no  knowl- 
edge of  the  busiiwss  in  which  ht  is  engaged.  The 
phrase  "knowledge  of  the  business"  is  i»ed  to  include 
knowledge  of  three  diflferent  subjects: 

1.  Knowledge  of  the  goods  the  sakaman  is  to 
handle. 


16S 


SELLING  AND  BUYING 


2.  Knowledge  of  the  policies,  methods,  aiid  personnel 
of  the  business  house  that  employs  him. 

8.  Knowledge  of  the  business  methods  and  of  the 
strength  and  weakness  of  competitors  in  the  field  in 
which  he  is  to  operate. 

In  a  previous  chapter  we  have  cmisidered  modern 
methods  of  training  salesmen,  in  which  practical  ex- 
jjerience  in  the  construction  of  the  things  to  be  sold 
plays  an  important  part.  No  man  can  sell  goods  in- 
telligently unless  he  is  thoroughly  familiar  with  them. 
He  frequently  meets  buyers  who  are  fully  conversant 
with  all  the  details  of  the  line  he  is  handling.  If  he 
finds  that  his  customer  knows  more  about  his  goods  than 
he  knows  himself,  he  is  in  a  decidedly  embarrassing  posi- 
tion, from  which  he  can  extricate  himself  with  credit 
only  by  the  exercise  of  exceptional  tact.  Absolute 
knowledge  of  the  goods  to  be  sold  is  essential,  and  this 
knowledge  can  be  acquired  only  by  specialization  and 
careful  training. 

The  most  promising  material  for  machinery  salesmen 
is  now  to  be  found  among  the  graduates  of  technical 
schools,  and  school-book  salesmen  are  largely  recruited 
from  the  ranks  of  teachers  who  have  had  actual  ex- 
perience in  using  the  kind  of  books  they  are  to  sell. 
In  these  as  in  all  other  lines  the  best  results  are  secured 
by  the  men  who  have  the  most  extensive  and  exact 
knowledge  of  the  things  they  sell. 

The  salesman  rei)resents  his  employer.  Therefore, 
he  can  not  work  to  the  best  advantage  unless  he  is  fully 
in  touch  with  the  house  that  employs  liim.  Too  often 
a  new  salesman  is  handicapped  by  being  sent  out  "on 
the  road"  before  he  has  had  opportunity  to  acquire 
familiarity  with  the  men  and  methods  at  the  home  office. 
The  wider  the  salesman's  acquaintance  among  the  mem- 


QUALITIES  OP  THE  SALESMAN 


16S 


bers  of  the  office  force,  the  greater  will  be  the  prob- 
ability of  co-operation  from  all  members  of  the  organi- 
zation. The  salesman  frequently  works  for  weeks  at 
a  time  without  coming  into  personal  contact  with  his 
manager  or  other  members  of  the  office  organization. 
At  such  times  his  efficiency  is  increased  if  he  knows  that 
he  is  something  more  than  a  mere  name  to  the  people 
at  the  home  office,  and  that  his  personal  acquaintance 
with  the  various  department  heads  will  insure  his  or- 
ders' being  given  as  careful  and  prompt  attention  as 
those  of  any  other  salesman. 

But  besides  knowing  the  members  of  the  organization 
of  which  he  is  a  part,  the  salesman  should  know  the 
methods  and  policies  of  the  house  that  employs  him. 
For  example:  the  routine  of  orders  is,  of  course,  ex- 
plained to  him,  and  if  he  has  reports  to  make  out,  he  is 
)jiven  instruction  in  the  method  of  their  preparation. 
If  his  instruction  in  methods,  however,  goes  no  further 
than  that,  one  opportunity  of  increasing  his  efficiency 
is  being  overlooked.  Delays  in  filling  orders  are  bound 
to  occur  at  times;  the  salesman  should  understand  the 
causes  of  these  delays  so  that  he  can  explain  the  matter 
satisfactorily  to  his  complaining  customers.  Many 
salesmen  look  upon  reports  as  unnecessary  and  unwel- 
come burdens;  if  they  have  a  complete  knowledge  of  the 
statistical  system  of  which  their  reports  form  an  im- 
iwrtant  part,  they  will  make  them  with  greater  willing- 
ness and  accuracy  than  would  otherwise  be  the  case. 

It  is  the  duty  of  a  salesman  to  keep  his  eyes  and  ears 
constantly  open  for  anything  that  may  have  even  a  re- 
mote bearing  on  the  sale  of  the  goods  he  is  handling. 
An  intimate  knowledge  of  the  competitive  field  is  a 
mark  of  the  high-grade  salesman.  It  is  frequently  and 
correctly  said  that  a  salesman  should  talk  to  a  customer 


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164 


SELLING  AND  BUYING 


about  his  own  line,  and  not  his  competitor's.  It  does 
not  follow,  however,  that  a  knowledge  of  his  competitor's 
line  is  unnecessary.  On  the  contrary,  the  salesman  who 
has  an  intimate  knowledge  of  the  quality  and  prices  of 
the  goods  that  are  in  competition  with  his  own  is  the  one 
who  can  make  the  most  effective  use  of  the  selling  points 
possessed  by  the  articles  he  is  handling. 

142.  Confidence. — A  salesman  without  confidence  in 
himself,  in  his  goods,  and  in  his  employer  can  not  be 
successful.  Confidence  is  not  a  quality  that  can  be 
cultivated  separately  like  honesty,  knowledge  of  the 
business,  industry,  etc.  It  is  the  natural  result  of  the  de- 
velopment of  all  the  other  essential  qualities.  A  man 
who  makes  g,  conscientious  study  of  his  own  physical, 
moral,  and  mental  characteristics,  with  the  firm  determi- 
nation to  correct  his  faults  and  to  develop  his  efficiency, 
and  who  is  at  all  successful  in  carrying  out  that  deter- 
mination, thereby  acquires  justifiable  confidence  in  him- 
self, v.^hich  enables  him  to  take  up  any  proposition  with 
reasonable  assurance  of  his  ability  to  carry  it  through 
to  success. 

Likewise,  an  intimate  knowledge  of  the  line  he  is  sell- 
ing serves  to  put  him  at  his  ease  in  whatever  situation 
he  may  find  himself.  If  he  has  studied  his  line  and 
has  found  it  good,  he  has  acquired  a  confidence  in  the 
things  he  is  to  sell  that  no  amount  of  criticism  by  a  buyer 
can  destroy.  On  the  other  hand,  if  he  has  studied  his 
line  carefully  and  has  found  it  unworthy  of  confidence, 
he  had  better  never  attempt  to  sell  it,  because  he  will  be 
constantly  forced  to  counterfeit  a  confidence  that  he  does 
not  possess. 

Confidence  in  the  house  that  employs  him,  in  its  finan- 
cial condition,  in  its  ability  to  keep  its  promises,  in  the 
character  and  ideals  of  the  men  at  its  head,  and  in  its 


QUALITIES  OF  THE  SALESMAN 


165 


desire  to  deal  honorably  with  everybody,  is  an  immensely 
valuable  asset  for  the  salesman.  It  increases  his  re- 
spect and  liking  for  his  employer,  it  promotes  satisfac- 
"on  and  contentment,  it  gives  him  assurance  of  solid 
.lacking,  and  it  adds  dignity  to  his  work. 

It  has  been  stated  that  confidence  is  the  basis  of  all 
business.  The  constant  effort  of  the  salesman  is  to 
create  in  the  mind  of  the  customer  confidence  in  the 
salesman,  in  the  goods  he  is  offering,  and  in  the  house 
that  makes  them.  If  the  man  who  is  trj'ing  to  inspire 
this  confidence  does  not  possess  it  himself,  he  can  not 
hope  to  be  successful  in  inspiring  it  in  another. 

143.  Enthusiasm. — A  great  authority  on  salesman- 
sliip  has  said :  A  man  might  have  honesty,  health,  abil- 
ity, initiative,  kno^vledge  of  the  business,  tact,  sincerity, 
industry,  and  the  other  qualities  of  salesmanship,  and 
without  enthusiasm  he  would  only  be  a  statue.  Enthu- 
siasm is  the  white  heat  that  fuses  these  qualities  into  one 
effective  mass. 

The  man  who  is  enthusiastic  has  an  intelligent,  vital 
interest  in  what  he  is  doing.  He  works  for  the  love  of 
the  work,  and  would  rather  sell  goods  than  do  anything 
else.  He  talks  as  if  he  meant  what  he  said,  because  he 
does  mean  it.  He  is  fired  with  an  intense  desire  to  im- 
part his  enthusiasm  to  others.  Enthusiasm  makes  a 
man  "talk  shop"  whenever  there  is  the  slightest  chance 
of  influencing  a  sale;  it  enables  him  to  forget  disappoint- 
ments and  failures  and  to  start  afresh  with  renewed  de- 
termination to  succeed. 

Emerson  says  that  no  great  thing  was  ever  accom- 
plished without  enthusiasm.  This  is  certainly  true  in 
selling,  as  in  everything  else.  Enthusiasm  is  the  force 
that  grips  the  attention  of  the  customer,  that  impresses 
him  with  the  salesman's  sincerity,  that  makes  him  forget 


166 


SELLING  AND  BUYING 


his  objections,  and  that  rushes  the  sale  past  all  obstacles 
to  a  successful  consummation.  It  is  a  quality  that  can 
be  acquired,  and  it  must  be  acquired  before  success  can 
come  m  the  fullest  measure  to  anyone  in  any  line  of 
endeavor. 

Thousands  of  salesmen  begin  each  working  day  with 
the  determined  purpose  of  working  up  their  enthusiasm 
to  a  pomt  that  will  carry  them  over  all  the  difficult  places 
m  the  day's  interviews.     Their  method  is  to  "seU  them- 
selves" every  day  before  they  try  to  present  their  propo- 
sitions to  anyone  else.     They  go  over  every  selling  ad- 
vantage of  their  goods,  they  present  their  arguments  to 
themselves  just  as  they  would  to  the  most  obstmate 
buyer,  and  they  prove  to  themselves  absolutely  that  their 
propositions  are  the  best  ones  on  the  market,  that  their 
houses  are  the  best  in  the  business,  and  that  no  one  is  so 
capable  of  selling  their  lines  as  they  are  themselves. 
This  method  of  stimulating  enthusiasm  brings  results. 
It  refreshes  the  salesman's  memory  with  the  essential 
points  m  his  selling  talk,  it  vitalizes  him  for  the  day's 
work.  It  rekindles  confidence  in  himself,  in  his  line,  and 
in  his  employer,  and  it  gives  him  the  magnetic  energy 
to  impart  his  confidence  to  others. 

Enthusiasm  is  the  quality  more  than  all  others  that 
makes  a  salesman  oblivious  of  difficulties,  that  vitalizes 
his  selling  efforts,  makes  him  forceful  and  optimistic 
turns  apparent  defeat  into  victory,  creates  a  bond  of 
sympathy  between  buyer  and  salesman,  changes  apathy 
into  mterest,  and  makes  personal  salesmanship  the  vital 
factor  that  it  is  m  the  distribution  of  the  world's  goods. 
U^.  Opportunities  in  salesmanship.-In  this  charac- 
ter sketch  of  a  successful  salesman  we  have  mentioned 
only  the  more  miportant  of  the  qualities  that  are  essen- 
tial to  success  m  salesmanship.     Their  number  and 


QUALITIES  OF  THE  SALESMAN 


167 


variety  are  indicative  of  the  growing  importance  and 
complexity  of  this  absorbing  profession.  Modem  indus- 
try offers  opportunities  that  were  not  dreamed  of  a  gen- 
eration ago,  and  in  no  field  of  business  are  there  greater 
opportunities  than  in  the  field  of  salesmanship.  It  calls 
for  the  highest  type  of  ability  and  training,  its  demands 
are  severe,  but  its  rewards  are  commensurate  with  its 
requirements. 


CHAPTER  XIV 

THE  BUYER  AND  HIS  WORK 

145.  Buying  the  universal  business  activity.— Buy ina 
IS  probably  the  most  common  of  all  business  activities 
In  any  marketing  or  manufacturing  business  a  portion 
ot  the  profits  are  very  directly  attributable  to  the  care 
with  wh,ch  the  stock  of  the  store  or  the  raw  materials 
for  the  factory  are  purchased.     It  is  true  that  the  buying 
end  of  the  business  is  not  of  primary  importance  in  such 
industries  as  farming,  lumbering,  mining,  and  banking, 
which  are  either  extractive  or  contributive,  and  are  not 
concerned  with  the  sale  of  goods  that  have  been  pre- 
viously  purchased  or  with  the  working  up  of  raw  mate- 
rial into  a  manufactured  product.     Even  in  these  indus- 
tries, however,  the  efficient  conduct  of  the  business  re- 
quires the  purchase  of  certain  supplies.     The  farmer 
and  lumberman  must  purchase  their  tools  with  care  the 
miner  must  exercise  skill  and  economy  in  buying  his 
valuable  machinery,  and  the  banker  must  guard  his 
profits  by  seeing  that  the  utmost  discretion  is  employed 
in  the  purchase  and  use  of  office  supplies. 

There  is  no  business  or  profession  that  does  not  in- 
volve the  purchase  of  supplies  of  some  sort.  Buying  is 
a  umversal  business  activity.  Despite  its  importance 
in  every  orgamzation,  however,  the  subject  of  buying 
has  received  little  attention  from  those  who  contribute 
to  the  rapidly  growing  literature  of  business.  The  pur- 
chasing ag-ent  has  had  no  text-books  and  few  reference 
works;  his  own  experience  and  observation  have  been 

168 


THE  BUYER  AND  HIS  WORK 


169 


almost  the  only  factors  in  his  training,  and  he  has  had 
little  opportunity  to  profit  by  the  experience  of  others 
whose  methods  and  systems  might  help  him  in  his  own 
activities. 

It  is  partly  due  to  this  fact  that  the  buyer  frequently 
is  a  "one  house"  man ;  that  is,  his  success  in  one  organi- 
zation has  not  always  been  accepted  as  proof  of  his 
ability  to  secure  equal  results  in  a  similar  capacity  with 
another  employer.  It  must  be  borne  in  mind,  of  course, 
that  the  amount  of  detailed  knowledge  required  of  the 
buyer  is  so  great  that,  even  under  the  most  favorable 
circumstances,  it  would  not  be  easy  for  him  to  go  from 
one  line  of  business  to  another  and  to  adapt  himself 
(juickly  to  the  new  conditions.  But  even  with  due 
weight  given  to  that  consideration,  it  is  not  to  be  ques- 
tioned that  general  training  in  the  principles  of  his  work 
may  be  of  assistance  to  the  buyer  just  as  it  is  to  the 
salesman  or  the  manufacturer  or  the  accountant  or  the 
correspondent. 

146.  Scope  of  buyer's  duties. — The  modem  tendency 
is  continually  to  broaden  the  scope  of  the  buyer's  duties. 
At  one  extreme  is  the  member  of  the  small  office  organi- 
zation to  whom  is  delegated  the  task  of  purchasing  the 
office  supplies.  At  the  other  extreme  is  the  buyer  for 
the  large  factory  who  purchases  raw  materials,  super- 
vises their  storage  and  distribution,  and  is  largely  re- 
sponsible for  the  satisfactory  working  of  the  cost  ac- 
counting system  so  far  as  it  pertains  to  the  processes  of 
production.  The  duties  of  the  buyer  are  so  closely  re- 
lated to  those  of  other  employes  that  the  tendency  is 
more  and  more  to  give  him  a  direct  interest  in  all  the 
work  that  is  miniediately  allied  to  purchasing. 

In  a  retail  or  wholesale  business  we  have  found  that 
it  is  not  customary  to  attempt  any  separation  of  the 


170 


SELLING  AND  BUYING 


functions  of  buying  and  supervision  of  selling;  and  in 
the  complex  factory  organization  the  close  relation  be- 
tween  the  actual  buying,  the  storing,  and,  to  some  ex- 
tent,  the  preliminary  working  on  the  raw  materials  that 
go  mto  the  finished  product,  has  made  it  frequently  ad- 
visable for  the  purchasing  agent  to  be  placed  in  charw 
of  all  of  these  activities. 

147.  Buyer's  problems.— The  chief  problem  of  the 
buyer  is  to  obtain  low  prices  and  quick  delivery  on  smaU 
quantities.     If  he  could  always  purchase  in  large  quan- 
titles,  his  duties  would  be  greatly  simplified,  and  the  pur- 
chasing would  become  largely  a  matter  of  system  and 
routine.     The  possibility  of  a  large  order  immediately 
attracts  those  who  have  the  desired  supplies.     One  sales- 
man bids  against  another  to  bring  down  the  price,  and,  if 
the  bidders  are  of  equal  responsibility,  the  placing  of  the 
order  simply  means  selecting  the  lowest  bid.     Ordina- 
riiy,  however,  the  buyer  is  not  in  this  enviable  position. 
He  must  frequently  go  into  the  market  with  a  smaU 
order  which  in  itself  is  not  attractive  to  the  suppliers, 
and  by  his  knowledge  and  skill  obtain  the  best  price 
that  IS  possible  under  the  circumstances. 

148.  Two  opposing  considerations.— In  his  desire  to 
do  his  work  in  the  most  efficient  manner,  the  buyer  is 
constantly  limited  in  his  activity  by  the  conflicting  re- 
quirements of  two  opposing  considerations.  The  first 
of  these  is  the  necessity  of  purchasing  in  the  largest  pos- 
sible quantities  in  order  to  secure  the  lowest  possible 
price.  If,  for  example,  one  thousand  units  of  a  certain 
article  can  be  used  by  a  factory  within  a  reasonable  time, 
and,  if  the  price  for  that  quantity  is  lower  proportion- 
ately than  for  one  hundred  units  of  the  same  article,  it  is 
to  the  buyer's  advantage  to  purchase  the  larger  amount. 
Is  it  equally  advisable,  however,  for  him  to  secure  a  still 


THE  BUYER  AND  HIS  WORK 


171 


lower  proportionate  price  by  purchasing  in  quantities 
of,  say,  ten  thousand  units?  The  requirements  of  eco- 
nomical buying  force  him  to  take  advantage  of  the 
quantity  price  whenever  possible,  but  the  question  of 
what  is  economical  buying  must  receive  careful  consid- 
eration in  each  individual  case. 

The  temptation  to  buy  heavily  is  not  occasioned  only 
by  the  low  price  generally  allowed  on  large  orders.  An 
unusual  condition  of  the  market  frequently  tempts  the 
buyer  to  purchase  a  large  stock  of  needed  supplies  under 
peculiarly  advantageous  circumstances.  The  restaurant 
keeper  may  have  an  exceptional  opportunity  to  buy 
fresh  fruit  at  a  very  low  price.  He  knows  that  he  will 
bave  to  pay  more  to-morrow  or  next  week,  and  if  the 
food  could  be  used  before  it  deteriorates  in  quality,  he 
would  save  money  by  purchasing  at  to-day's  price.  The 
clothing  dealer  may  be  offered  a  lot  of  garments  at  a 
special  price  which  will  mean  a  large  profit  on  the  trans- 
action. If  he  could  accurately  judge  the  future  de- 
mand, he  might  buy  heavily  because  of  the  unusual  in- 
ducement. The  automobile  manufacturer  may  have  a 
chance  to  make  a  long  time  contract  with  a  certain  manu- 
facturer of  gasolene  engines  on  especially  favorable 
terms.  If  he  could  be  sure  that  improvements  and  econ- 
omies would  not  be  effected  in  gasolene  engines  in  the 
near  future,  it  would  be  to  his  advantage  to  enter  into 
the  contract. 

In  all  these  cases  the  price  is  tempting;  and,  if  that 
were  the  only  consideration,  the  buyer  would  be  saving 
money  by  taking  advantage  of  the  quantity  figure. 
There  is,  however,  a  second  consideration  that  enters 
into  every  buying  problem.  This  second  considera- 
tion is  the  necessity  of  limiting  the  size  of  the  purchases, 
which  may  be  caused  ( 1 )  by  financial  considerations,  or 


178 


SELLING  AND  BUYLNG 


(2)  by  the  possibility  of  depreciation.     Let  us  examine 
these  two  considerutions. 

149.  Vimmcinl  co„mhratio,nf.—ln  a  small  establish- 
ment the  resources  of  which  are  meager  and  the  credit 
Jmnted,  the  financial  consideration  is  the  one  of  first  im- 
portance; and  this  consideration  loses  little  of  its  impor- 
tance even  in  the  larger  and  richer  organizations.     The 
abdity  to  turn  over  capital  rapidly  is  of  vital  impor- 
tance  m  successful  merchandising,  and  it  is  never  advisa- 
ble  therefore,  to  tie  up  capital  in  supplies  beyond  the 
extent  required  by  economical  buying.     The  manufac- 
turer must  likewise  beware  of  an  unnecessary  or  exces- 
sive investment   of  capital  in  the   purchase  of  raw 
materials. 

In  order  to  guide  the  buyer  in  his  determination  of 
the  proper  quantities  to  purchase,  maximum  quantities 
are  usually  determined  upon,  which  the  stock  of  supplies 
Tu°u  ""^^^^^^^  «f  ^ny  particular  kind  must  not  exceed. 
Although  these  quantities  are  fixed  only  after  careful 
consideration  of  the  peculiar  requirements  of  the  or- 
ganization and  the  nature  of  the  supplies,  it  is  pkin  that 
at  times  the  arbitrary  limits  may  seriously  embarrass  the 
buyer  in  his  work.  They  are,  however,  valuable,  be- 
cause without  them  the  buyer  would  be  tempted,  under 
the  provocation  of  exceptional  prices,  to  tie  up  more 
capital  ,n  one  line  than  the  financial  condition  of  the 
house  would  j  ustif y. 

150.  PossihiUty'of  depreciation.~Although  the  chief 
reason  for  limiting  the  buyer's  purchases  is  the  financial 
one,  he  must  also  constantly  bear  in  mind  the  peculiar 
nature  of  the  goods  he  buys  and  the  possibility  that  they 
may  deteriorate  in  quality  and  depreciate  in  value  If 
goods  bought  to-day  would  in  all  cases  have  the  same 
value  at  all  times  in  the  future,  the  purchasing  agent 


THE  BUYER  AND  HIS  WORK 


173 


inioht  be  justified  in  yielding  to  the  temptations  of  price 
and  in  making  purchases  lieyond  the  maximimi  limit. 
IJiit  this  is  not  the  case;  depreciation  is  a  factor  that 
:iiust  enter  into  all  his  calculations. 

1.>1.  Illustrationa. — The  force  of  this  consideration 
muy  be  illustrated  by  a  few  examples.  It  would  be 
Mry  wasteful  for  a  restaurant  keeper  to  purchase  more 
(if  perishable  commodities  than  the  probable  demand 
would  justify.  For  instance,  he  must  ordinarily  buy 
Iresh  meat  and  vegetables  only  to  meet  the  demand 
from  day  to  day,  while  in  the  case  of  canned  goods 
lie  can  buy  in  a  low  market  and  safely  store  the  goods 
until  they  are  needed.  The  buyer  for  a  clothing  store 
can  not  purchase  for  more  than  a  single  season,  because 
styles  in  garments  are  constantly  changing,  and  cloth- 
ing left  on  hand  at  the  end  of  the  season  must  be  sold 
with  a  sacrifice  of  normal  profits.  In  an  industry  such 
as  the  manufacture  of  automobiles,  in  which  processes 
are  constantly  being  changed  and  improvements  ef- 
fected, it  would  not  be  advisable  for  a  buyer  to  stock  too 
heavily  with  the  various  kinds  of  parts,  because  of  the 
ehance  of  their  being  superseded  by  some  better  devices 
in  the  near  future.  In  all  these  instances  depreciation 
is  a  factor  that  the  buyer  must  consider  carefully  in  de- 
termining the  quantities  that  it  is  safe  for  him  to  pur- 
cliase. 

152.  The  task  of  the  buyer. — \  'd  have  seen  that 
although  the  buyer  is  always  anxious  to  get  the  low 
(juantity  price,  he  is  constantly  face  to  face  with  the  ne- 
cessity of  limiting  the  size  of  his  purchases,  both  on  ac- 
count of  the  resources  and  financial  policy  of  his  em- 
ployer, and  because  of  the  nature  of  the  articles  to  be 
purchased.  This  dual  aspect  of  the  buyer's  task  makes 
his  problem  a  difficult  one.    He  must  view  every  prop- 


171 


SELLING  AND  BUYING 


os.t.on  from  two  points  of  view,  and  the  success  of  his 
work  ,s  judged  by  the  degree  to  which  he  reconciles  the 
two  conflicting  interests  that  enter  into  every  decision. 

159.  Speculative  buying.-There  are  times,  of  course, 
when  the  maximum  stock  figure  is  exceeded,  and  when 
the  advantages  of  the  quantity  price  outweigh  the  dis- 

^upphes  If  there  is  any  possibility  of  depreciation  in 
tilin  P^r^i^^^i*  however  (and  there  are  compara- 
t.vely  few  kinds  of  goods  that  do  not  depreciate  in 
value),  the  buyer  who  exceeds  the  maximum  stock  limit 
IS  purchasing  on  a  speculative  basis.  Much  buying  is 
of  this  character,  and  the  successful  buyer  has  to  take 
many  chances;  but  even  in  speculative  buying,  its  basis 
must  be  the  thoughtful  opinion  of  the  buyer  fonsequent 
upon  a  careful  balancing  of  the  two  conflicting  consid- 
erations that  are  ever  present  in  his  work. 

154.  Qualifications  of  buyer.— Because  of  the  com- 
plex nature  of  the  problem  that  continuaUy  confronts 
him,  the  buyer  must  possess  unusual  qualifications  for 
h^s  work.  The  most  important  of  these  qualifications 
may  be  grouped  under  the  general  term,  "knowledge." 
^J;''  r^  be  subdivided  into  (1)  knowledge  of  the 
house  by  which  he  is  employed,  (2)  knowled^  of  de- 
mand, (8)  knowledge  of  goods,  including  quSty  and 
present  and  prospective  prices,  and  (4)  knowledge  of 
the  sources  of  supply.  * 

155  Knowledge  of  the  house  by  which  buyer  is  em- 
M~^o  buyer  can  intelligently  carry  on  his  work 
unless  he  is  completely  in  touch  with  the  policy  of  his 
house  He  must  know  (l)  its  financial  ^souLes,  so 
that  he  may  determine  whether  he  is  in  a  position  to  de- 
mand and  receive  the  most  advantageous  credit  terms; 
(2j  in  a  general  way  at  least  he  must  know  the  usual 


^^^_ 


THE  HUVEK  AND  HIS  WORK 


Hf) 


and  unusual  demands  upon  the  available  funds  of  the 
house,  so  that  he  may  be  able  to  determine  the  possibility 
of  any  heavy  buying  that  may  seem  desirable;  (8)  he 
must  know  the  attitude  of  the  owner  or  the  directors 
toward  the  question  of  expansion  or  curtailment  of  pro- 
duction, so  that  if  there  are  any  plans  in  contemplation 
affecting  the  kind  and  quantity  of  the  output,  he  may 
k'  able  to  govern  his  purchasing  accordingly. 

136.  Knowledge  of  manufacturing,  processes. — In 
addition  to  the  policies  and  resources  of  the  house  he 
represents,  the  buyer  must  know  thoroughly  the  manu- 
facturing processes  through  which  the  raw  material 
jJEsses.  The  buyer  deals  with  many  salesmen.  Each 
one  probably  handles  but  a  single  article  or  line  and  in 
that  one  field  he  is  an  expert.  The  salesman  knows  ab- 
solutely the  exact  place  and  advantages  of  his  article  or 
line  in  the  manufacturing  process  of  the  house  to  which 
he  is  trying  to  sell.  He  is,  therefore,  at  an  advantage 
over  the  buyer  unless  the  latter  also  has  a  complete 
knowledge  of  how  the  product  of  his  house  is  manufac- 
tured. 

The  buyer  must  know  the  uses  for  the  various  things 
that  he  buys.  A  certain  article  may  be  made  in  several 
grades  or  qualities,  only  one  of  which  will  answer  for 
the  particular  purpose  for  whict  it  is  used.  Unless  this 
information  is  in  the  buyer's  possession,  he  is  likely  to 
he  misled  into  the  purchase  of  a  grade  or  quality  that 
can  not  be  used  by  the  factory.  So  important  is  this 
knowledge  of  processes  that  often  the  buyer  is  given  his 
position  because  of  thorough  training  in  all  depart- 
ments of  the  factory.  If  it  is  important  for  the  sales- 
men who  are  to  sell  the  finished  product  to  know  the 
product  absolutely  through  actual  experience  in  its 
manufacture,  it  is  at  least  of  equal  importance  that  this 


170 


SELLING  AND  BUYING 


same  knowledge  be  possessed  by  the  man  whose  skill  and 
knowledge  are  responsible  for  the  factors  that  enter 
primarily  into  the  cost  of  the  finished  article. 

1.37.  Familiaritii  xvith  departmental  divisions  of  house. 
— The  efficient  buyer  is  familiar  with  the  departmental 
divisions  of  his  house,  and  with  the  exact  nature  of  the 
duties  of  each  division.  He  buys  not  only  raw  material 
for  manufacture  but  the  various  tools  of  the  business 
and  the  general  office  supplies  as  well.  In  many  organi- 
zations it  is  his  duty  to  pass  upon  the  requisitions  of  de- 
partment heads  or  their  subordinates  for  supplies  of 
various  sorts.  To  do  this  intelligently  he  must  have  a 
complete  grasp  of  the  needs  of  the  departments  and  of 
the  material  that  is  best  suited  to  accomplish  their  pur- 
poses. This  particular  function  of  the  purchasing 
agent  is  one  that  requires  other  qualifications  bes' :  ?s 
knowledge,  but  the  first  necessity  in  this  work,  as  in  all 
other  branches  of  the  buyer's  activity,  is  knowledge  of 
the  wants  of  the  business  and  of  the  materials  that  w\\\ 
satisfy  them  in  the  most  effective  and  economical  man- 
ner. 

158.  Acquaintance  with  important  employes. — 
Closely  associated  with  knowledge  of  the  departmental 
divisions  and  their  work,  is  knowledge  of  the  men  who 
make  up  the  organization.  Through  his  function  of 
buying  supplies  for  all  parts  of  the  business— office 
as  well  as  factory — the  purchasing  agent  is  brought 
into  contact  with  practically  all  of  the  important  em- 
ployes. 

If  he  has  the  power  of  vetoing  their  requisitions,  a 
knowledge  of  their  individual  characteristics  is  essential 
to  guide  him  in  this  important  duty.  If  a  careful,  con- 
servative department  head  sends  in  an  unusual  requisi- 
tion for  new  and  expensive  supplies,  the  buyer  will 


THE  BUYER  AND  HIS  WORK 


177 


more  readily  fill  the  requisition  than  he  would  if  it  came 
from  a  man  who  was  continually  ordering  unnecessary 
articles  and  attempting  to  install  expensive  systems 
without  any  preliminary  test  of  their  efficiency.  In  re- 
jecting a  requisition  it  must  be  done  in  a  manner  calcu- 
lated to  produce  the  least  friction  and  unpleasantness, 
and  in  the  performance  of  this  delicate  task  a  knowl- 
edge of  the  men  with  whom  he  is  dealing  is  a  valuable 
asset  for  the  purchasing  agent. 

We  have  shown  that  the  most  important  qualification 
of  the  buyer  is  knowledge  and  that  the  class  of  knowl- 
edge he  must  first  acquire  is  knowledge  of  the  house 
by  which  he  is  employed.  We  have  subdivided  knowl- 
edge of  the  liouse  into  the  following  headings,  and  have 
shown  how  each  is  of  importance  to  the  buyer  in  his 
work: 

1.  Knowledge  of  the  house  in  general,  including  its 
financial  resources  and  trade  policies. 

2.  Knowledge  of  manufacturing  processes. 

3.  Knowledge  of  departmental  divisions  and  their 
works. 

4.  Knowledge  of  the  characteristics  of  the  individual 
members  of  the  organization. 

159.  Knowledge  of  demand. — The  second  class  of 
knowledge  that  the  successful  buyer  must  possess  is 
knowledge  of  demand.  In  acquiring  this  knowledge 
the  man  who  purchases  raw  material  for  a  factory  has  a 
relatively  simple  problem  as  compared  with  that  of  the 
buyer  in  a  retail  or  wholesale  store.  The  quantity  of 
the  various  kinds  of  raw  material  that  will  be  required  to 
keep  the  factory  running  to  capacity  is  usually  capable 
of  exact  determination.  The  stock-keeper  has  a  card 
for  each  item  that  enters  into  the  productive  process. 
On  this  card  is  shown  the  minimum  amount  of  that 

111—19 


178 


SELLING  AND  BUYING 


particular  commodity  tliat  should  be  on  hand  at  all 
times,  as  well  as  the  maximum  quantity  that  the  stock 
must  not  exceed. 

Under  normal  conditions  it  is  a  relatively  simple  mat- 
ter to  keep  the  supply  of  each  item  somewhere  between 
the  maximum  and  minimum  figures.  Although  this 
system  takes  into  account  the  possibility  of  orders  that 
will  require  the  maximum  output  of  the  factory,  it  does 
not  provide  a  mechanical  method  of  determining  demand 
when  it  is  affected  by  such  abnormal  ccxiditions  as  the 
following:  labor  troubles  that  make  it  necessary  to  close 
the  plant ;  commercial  crises  that  result  in  an  unexpected 
decrease  in  orders;  mechanical  improvements  that  render 
obsolete  part  of  the  stock  of  raw  materials  or  equipment; 
changes  in  popular  taste  or  requirements  that  affect  the 
demand  for  the  finished  product. 

No  system,  however  carefully  developed,  can  enable 
the  buyer  to  foresee  the  future  or  to  guard  against  all 
possible  contingencies.  Nevertheless  the  buyer  is  con- 
stantly under  the  necessity  of  attempting  to  foresee  the 
future  demand  for  the  things  he  purchases  or  for  the 
finished  product  into  which  his  purchases  enter  as  raw 
materials.  He  is  successful  in  this  attempt  largely  in 
proportion  to  his  experience  and  to  his  detailed  knowl- 
edge of  every  condition  that  may  have  any  influence 
upon  demand.  He  frequently  fails,  but,  in  view  of  the 
fallibility  of  human  judgment,  it  is  surprising  how  often 
the  successful  buyer  is  able  to  foretell  accurately  the 
conditions  that  will  obtain  in  his  business. 

160.  Buyer  for  wholesale  or  retail  store. — ^We  have 
seen  that  the  factory  buyer  has  certain  systematic  aids 
in  his  purchase  of  raw  materials,  although  he  is  by  no 
means  entirely  relieved  of  the  necessity  of  judging  fu- 
ture demand.    The  buyer  for  a  wholesale  or  retail  store, 


THE  BUYER  AND  HIS  WORK 


179 


oil  the  other  hand,  has  a  more  difficult  problem  to  solve. 
A  merchant's  stock  usually  consists  of  staples  and  novel- 
ties. To  the  extent  that  an  article  is  a  staple,  and  is, 
tiierefore,  in  comparatively  steady  demand,  its  purchase 
can  be  systematized  in  a  manner  similar  to  that  in  which 
the  factory  buyer  systematizes  his  purchase  of  stock 
parts  for  the  finished  product. 

But  no  such  method  can  be  applied  to  the  purchase  of 
novelties.  How,  for  instance,  is  the  wholesale  procer 
to  judge  of  the  probable  demand  for  a  new  brand  of 
breakfast  food?  Obviously  in  the  merchandising  field, 
buying  inevitably  involves  a  considerable  factor  of 
speculation.  Nevertheless  the  buyer's  opinion  of  fu- 
ture demand  must  always  be  based  upon  something 
tangible,  and  the  surest  foundation  for  successful  judg- 
ing of  the  future  is  wide  experience  in  the  past  and  the 
broadest  possible  knowledge  of  the  innumerable  condi- 
tions that  influence  demands. 

161.  Knowledge  of  goods  to  he  purchased. — The  pur- 
chasing agent  must  know  his  house,  he  must  know  de- 
mand, and,  in  addition,  he  must  know  the  goods  with 
which  he  has  to  deal.  •  He  must  be  able  to  judge  of  their 
quality,  and  he  must  have  a  thorough  grasp  of  the  sub- 
ject of  prices,  both  present  and  prospective.  Price 
and  quality  are  so  closely  related  that  it  is  unnecessary 
to  treat  them  separately  in  this  consideration  of  the 
buyer's  qualifications. 

The  buyer  must  know  values;  in  other  words,  when  he 
makes  a  purchase,  he  must  know  whether  he  is  getting 
the  most  that  is  possible  for  the  amount  expended.  To 
do  this  he  must  have  an  intimate  knowledge  of  raw 
materials,  of  production  processes,  and  of  production 
costs.  Suppose,  for  example,  that  a  buyer  is  purchas- 
ing iron  castings  in  a  competitive  market.     Their  value 


1«() 


SELLING  AND  BUYING 


is  largely  dependent  on  the  cost  of  the  raw  material,  the 
nature  of  the  foundry  processes,  and  the  cost  of  these 
processes.  To  purchase  intelligently  the  buyer  must 
have  knowledge  of  all  these  factors.  If  he  is  purchasing 
a  complicated  piece  of  machinery,  the  problem  is  more 
difficult  than  in  the  simple  case  of  the  purchase  of  iron 
castings.  Too  often  the  careless  buyer  judges  of  the 
merits  of  articles  only  by  comparing  one  with  another 
instead  of  with  the  ideal  product  which  should  be  the 
standard  of  comparison.  The  latter  is  the  method  that 
most  successful  buyers  use. 

If  a  buyer  is  required  to  purchase  at  different  times, 
a  large  variety  of  articles,  it  is  obvious  that  it  is  a  phy- 
sical impossibility  for  him  to  familiarize  himself  with 
all  the  articles  he  is  required  to  buy.  At  least,  he  can 
not  do  so  until  he  has  had  long  experience  in  his  duties. 
In  such  a  case  it  is  necessary  for  him  to  analyze  the 
situation  and  to  select  the  articles  that  enter  most  fre- 
quently into  his  purchases  and  that,  because  of  their 
nature,  present  the  greatest  difficulties  to  the  purchas- 
ing agent  who  is  unfamiliar  with  them.  This  list  should 
receive  his  first  study.  When  he  has  secured  a  work- 
ing knowledge  of  the  essential  details  of  the  articles  on 
the  list,  he  should  gradually  add  to  them,  until  he  has 
obtained  a  fair  familiarity  with  all  the  goods  that  he 
may  be  called  upon  to  handle. 

This  suggested  method  of  acquiring  familiarity  with 
raw  materials  and  productive  processes  is  probably  of 
too  general  a  nature  to  be  of  much  practical  value  to  the 
ambitious  buyer.  The  fact  that  it  is  general,  and  that 
nothing  more  definite  is  possible  within  the  limits  of  a 
general  discussion  of  the  subject  of  buying,  is  indica- 
tive of  the  difficulty  of  the  buyer's  problem.  The  success- 
ful  buyer   is   a   store-house   of   detailed   information. 


THE  BUYER  AND  HIS  WORK 


181 


Systems  of  various  kinds  help  him  in  accumulating, 
filing,  and  using  data;  but  behind  the  system  must  al- 
ways be  the  ability  to  analyze  goods  and  processes  and 
determine  the  things  about  them  that  ought  to  be  known, 
to  investigate  the  essential  points,  and  to  store  the  ac- 
(juired  information  in  such  a  way  that  it  can  be  employed 
immediately  whenever  necessity  arises  for  its  use. 

We  have  said  that  the  purchasing  agent  is  chiefly 
guided  in  his  determination  of  values  by  a  knowledge 
of  raw  mater  '.  and  of  productive  processes.  There 
are,  however,  ol  ler  items  to  be  taken  into  consideration, 
such  as  profits,  selling  and  administrative  expenses,  and 
the  like.  It  is  far  more  difficult  to  acquire  knowledge 
of  these  factors  than  it  is  to  acquire  knowledge  of  mate- 
rials and  processes. 

Selling  costs,  for  instance,  vary  greatly  in  diflFerent 
houses  handling  the  same  line,  and  no  buyer  can  expect 
to  do  more  than  approximate  the  cost  of  this  item.  The 
same  thing  is  true  to  some  extent,  of  course,  of  produc- 
tion costs.  In  modern  factories,  however,  there  are  by 
no  means  the  variations  in  these  costs  that  there  are  in 
the  costs  of  selling. 

The  increasing  application  of  the  principles  of  scien- 
tific management  is  doing  much  to  eliminate  the  uncer- 
tainties of  production  costs;  and,  while  there  probably 
will  never  be  uniformity  in  the  cost  of  producing  identi- 
cal goods  in  any  two  factories,  it  is  becoming  more  and 
more  possible  for  the  buyer  who  has  made  a  complete 
study  of  the  cost  of  producing  a  certain  article  in  one 
factory,  to  make  a  fairly  satisfactory  estimate  of  the 
cost  of  producing  a  like  article  in  any  factory  where 
similar  productive  methods  are  employed. 

162.  Judging  future  prices. — In  judging  future 
prices  the  buyer  must  depend  on  the  same  things  that 


18a 


SELLING  AND  BUYING 


guide  him  in  judging  future  demand;  namely,  past  ex- 
perience and  wide  knowledge.  The  buyer  who  foresees 
an  era  of  low  or  of  high  prices  and  who  adjusts  his  pur- 
chases accordingly,  is  in  a  position  to  save  his  employer 
a  great  deal  of  money. 

The  average  man  who  attempts  to  determine  which 
way  the  market  is  going  bases  his  guess  on  insufficient 
information  or  on  no  information  at  all.  The  small 
speculator  who  attempts  this  feat  usually  loses  only  his 
own  money.  The  buyer  who  follows  the  same  tactics 
stands  a  chance  of  ruining  his  employer. 

Any  buying  on  the  basis  of  future  prices  is  specula- 
tive and  dangerous.  If  it  is  attempted,  the  buyer's 
judgment  must  be  based  on  the  most  complete  informa- 
tion that  it  is  possible  to  acquire.  For  example,  the 
buyer  for  a  large  cotton  mill  is  keenly  interested  in  the 
possible  fluctuations  in  the  price  of  raw  cotton.  No 
item  of  news  bearing  on  the  cotton  supply  escapes  his 
attention.  He  is  equally  interested  in  the  appearance 
of  the  boll  weevil  in  Texas,  in  a  threatened  mutiny  in 
India,  and  in  the  failure  of  the  cotton  crop  in  Egypt. 

In  like  manner,  the  tea  buyer  for  a  wholesale  grocer 
interprets  in  terms  of  future  prices  such  news  items  as 
an  agreement  of  the  Powers  affecting  the  "open  door" 
in  China,  the  Japanese  annexation  of  Formosa,  and  the 
imposition  of  a  new  duty  on  tea  by  Congress.  These 
examples  suggest  the  range  of  information  that  the 
buyer  must  ^)or.sess  if  his  judgments  of  price  movements 
are  to  be  anything  more  than  mere  guesses. 

163.  Knowledge  of  sources  of  supply. — The  last 
class  of  knowledge  that  the  buyer  must  possess  is  knowl- 
edge of  the  sources  of  the  supplies  that  he  is  to  pur- 
chase. It  is  possible  to  acquire  this  information  ac- 
curately, and  to  systematize  it  in  such  manner  that  the 


THE  BUYER  AND  HIS  WORK 


188 


data  is  always  readily  accessible.  In  general,  the 
buyer  must  know  the  following  items  about  the  busi- 
ness houses  from  which  it  is  possible  to  purchase  the 
goods  he  desires:  location  and  facilities  for  delivery; 
ability  to  keep  promise.,  financial  responsibility;  pro- 
duction methods;  selling  methods. 

164.  Importance  of  location  of  various  houses. — Ob- 
viously, the  location  of  the  various  houses  that  can  sup- 
ply the  buyer's  wants  is  an  important  factor  in  deter- 
mining which  one  is  to  secure  the  order.  If  the  same 
quality  of  coal  were  mined  in  Colorado  and  in  Illinois, 
the  man  in  Colorado  who  wanted  that  grade  of  coal 
would  be  foolish  to  order  it  from  Illinois.  Location 
also  has  an  important  bearing  on  the  ability  to  ship 
safely  and  quickly.  A  small  order  for  furniture  for  a 
Milwaukee  dealer  would  go  more  quickly  and  with  a 
greater  chance  for  safety  from  Grand  Rapids  than  from 
some  point  in  North  Carolina.  Facilities  for  delivery 
have  a  close  connection  with  location.  In  placing  an 
order  with  a  local  dealer  the  buyer  is  influenced  by  the 
consideration  of  whether  he  must  send  his  own  truck 
for  the  supplies,  or  whether  the  dealer  will  deliver  them. 
An  order  for  grain  to  be  delivered  by  rail  would  prob- 
ably not  be  placed  with  a  dealer  who  did  not  have  proper 
elevator  facilities  for  unloading  it  into  cars. 

165.  Ability  of  salesman's  house  to  keep  his  promises. 
— To  obtain  an  order,  an  irresponsible  salesman  may 
make  any  promises  respecting  such  items  as  quality 
of  goods  and  time  of  delivery.  The  buyer  must  know 
whether  the  salesman's  house  is  capable  of  keeping  these 
promises.  A  certain  buyer  wanted  a  supply  of  iron 
bolts  for  an  urgent  purpose.  He  had  been  dealing 
with  Messrs.  A.  &  B.,  and  he  knew  that  they  could  de- 
liver the  goods  in  the  necessary  time.    Messrs.  X.  &  Y., 


184 


SELLING  AND  BUYING 


liowever,  made  a  bid  for  the  business  at  an  exceptionally 
low  price.  They  promised  prompt  delivery,  and  the 
buyer  a^freed  to  give  them  the  order.  When  the  agreed- 
upon  delivery  period  had  expired,  only  a  small  pro- 
portion  of  the  total  order  had  been  fUled.  The  low 
price  that  was  offered  had  tempted  the  buyer  to  run  the 
risk  of  the  new  firm's  not  being  able  to  keep  their  promise 
of  delivery.  This  method  of  buying  does  not  pay;  the 
successful  buyer  must  have  some  good  reason  for  be- 
lieving that  the  house  that  gets  the  order  can  fill  it  in  all 
of  its  details. 

166.  Credit  rating  of  seller.—Closely  related  to  the 
ability  to  keep  promises  is  the  financial  responsibility 
of  the  houses  with  which  the  buyer  deals.     Many  a  large 
contract  has  gone  to  a  small  concern  which  did  not  have 
the  resources  to  complete  it.     The  results  in  such  cases 
are  always  annoying,  and  frequently  productive  of  fi- 
nancial loss  to  the  purchasing  house.     The  buyer  can 
not  afford  to  deal  with  houses  that  are  not  as  fully  able 
to  fill  the  order  as  his  house  is  able  to  pay  for  the  goods. 
In  other  words,  in  the  placing  of  a  large  order  the  credit 
rating  of  the  seller  is  as  important  as  that  of  the  buyer. 
167.  Important  to  know  costs.— The  importance  to 
the  buyer  of  possessing  a  knowledge  of  productive  proc- 
esses has  already  been  considered  in  connection  with 
the  discussion  of  the  relation  between  value  and  the  cost 
of  productive  processes.     It  is  of  importance  to  the 
buyer  in  another  way.     Suppose,  for  example,  that  he 
wants  to  purchase  machine  tools,  and  that  he  is  visited  by 
a  salesman  representing  a  manufacturer  who,  the  buyer 
knows,  has  in  operation  a  satisfactory  system  of  cost  ac- 
counting.    It  is  possible  for  that  manufacturer,  then 
to  know  the  cost  of  his  product  with  a  reasonable  degree 
of  accuracy.     To  this  cost  he  presumably  adds  a  fair 


V 


THE  BUYER  AND  HIS  WORK 


185 


profit,  and  the  result  is  a  price  that  the  buyer  has  little 
tliaiice  (»f  "beating  down";  because  few  manuiacturers 
will  accept  an  order  at  or  below  cost  when  they  really 
know  what  the  cost  is.  They  will  not  do  so  unless  they 
are  willing  to  sell  below  cost  to  secure  an  order  that  may 
result  in  profitable  future  business. 

If  the  buyer  knows  of  the  operation  of  the  manufac- 
turer's cost  system,  he  can  usually  save  his  own  and  the 
salesman's  time  by  accepting  the  first  quotation  as  final. 
On  the  other  hand,  a  buyer  may  be  interviewed  by  a 
salesman  who  represents  a  house  in  which  cost  account- 
ing is  unknown  or  inefficiently  operated.  Neither  the 
manufacturer  nor  the  salesman  knows  the  real  cost  of 
what  he  is  selling.  He  usually  has  a  variable  scale  of 
prices,  and  if  the  buyer  knows  of  the  absence  of  suitable 
cost  methods,  and  if  he  is  shrewd  enough,  he  may  be 
able  to  force  down  the  price  to  a  point  actually  below 
the  cost  of  production. 

There  is  nothing  ethically  wrong  in  a  buyer's  securing 
any  price  that  it  is  possible  for  him  to  obtain,  if  he 
avoids  misrepresentation  and  uses  only  honest  methods; 
because  no  independent  supplier  can  be  forced  to  make 
any  price  that  he  does  not  wish  to  make.  If  a  manufac- 
tui-er's  business  methods  are  such  that  he  does  not  know 
his  cost  of  doing  business,  and  if  he  consequently  per- 
mits his  salesmen  to  make  unprofitable  prices  to  get  an 
order,  the  buyer  is  perfectly  justified  in  taking  advan- 
tage of  such  a  condition. 

168.  Selling  methods  of  houses  dealt  with. — The  last 
important  item  for  the  buyer  to  know  about  the  houses 
with  which  he  deals  is  their  selling  methods.  Many 
manufacturers,  even  when  they  have  an  exact  knowl- 
edge of  the  cost  of  producing  and  marketing  their  prod- 
uct, consciously  make  their  list  prices  considerably  in 


186 


SELLING  AND  BUYING 


excess  of  the  figure  they  will  be  satisfied  to  receive. 
This  is  done  sometimes  to  conceal  the  real  selling  prices 
from  competitors;  at  other  times,  to  make  buyers  think 
that  they  are  being  specially  favored  when  they  are 
granted  large  discounts  from  the  list  prices;  and  in  still 
other  cases,  because  competitive  conditions  in  the  busi- 
ness  are  such  that  the  manufacturer  expects  buyers  to 
question  every  quoted  price. 

There  are  some  buyers  whose  principal  qualification  is 
the  ability  to  "beat  down"  the  price,  and  in  anticipation 
of  these  tactics  some  manufacturers  and  dealers  always 
make  their  first  quotation  considerably  in  excess  of  the 
real  market  value  of  the  thing  to  be  sold.  When  such 
houses,  however,  deal  with  a  buyer  who  never  practices 
the  "offer"  method  of  buying,  but  accepts  or  rejects  a 
proposition  on  the  basis  of  the  first  price  quoted,  they 
have  to  modify  their  usual  procedure  and  make  their 
first  quotation  a  fair  one.  It  is  as  important,  therefore, 
for  the  salesman  to  be  familiar  with  the  methods  of  the 
buyer  as  it  is  for  the  buyer  to  know  the  selling  methods 
of  the  houses  that  solicit  his  patronage. 

169.  Variable  price  scales,— Many  reputable  con- 
cerns still  have  a  variable  scale  of  prices,  and  there  are 
highly  successful  purchasing  agents  who  continue  to 
look  with  suspicion  upon  every  quoted  price.  But  as 
fixed  prices  are  doing  more  than  any  other  one  thing  to 
dignify  the  profession  of  salesmanship,  so  buyers  are 
generally  coming  to  believe  that  they  can  best  serve  their 
exployers  and  save  valuable  time  by  dealing  with  houses 
that  quote  but  one  price  and  that  refuse  to  deviate 
from  that  figure. 

170.  Tact  in  buying.— We  have  shown  that  the  first 
qualification  of  the  successful  buyer  is  knowledge;  we 
have  analyzed  this  knowledge  that  he  must  possess,  and 


THE  BUYER  AND  HIS  WORK 


187 


have  considered  each  of  its  main  sub-divisions.  The 
second  important  qualification  is  tact.  Tact  is  the 
qtiulity  that  enables  its  possessor  to  get  along  with  others 
without  friction.  First  of  all,  tact  is  essential  to  the 
buyer  in  his  relation  with  his  fellow  employes,  and  then 
in  relation  to  the  salesmen  who  call  upon  him.  We 
have  shown  that  one  duty  ordinarily  assigned  to  the 
purchasing  agent  is  the  acceptance  or  rejection  of  req- 
uisitions for  supplies  frran  the  heads  of  departments. 
In  exercising  this  function  it  is  necessary  for  the  buyer 
to  know  intimately  the  needs  and  work  of  the  different 
departments;  but  it  is  far  more  important  for  him  to 
possess  and  to  exercise  tact,  so  that  his  veto  of  a  requisi- 
tion may  not  cause  ill-feeling,  and  be  destructive  of  the 
co-operation  that  should  exist  between  all  departments. 

171.  Friendly  relations  with  salesmen. — A  tactful 
buyer  secures  the  good  will  of  the  salesmen  who  call  upon 
him,  while  one  without  this  quality  is  likely  to  antago- 
nize them.  No  man  is  fitted  for  a  purchasing  posi^'*  n 
unless  he  is  able  to  gain  and  hold  the  regard  of  ii  j 
with  whom  he  comes  into  contact.  It  is  true  that  tiie 
salesman  is  the  one  who  is  most  often  seeking  the  favor 
of  the  buyer,  but  it  is  just  as  true  that  the  salesman  is  in 
a  position  on  many  occasions  to  do  substantial  favors 
for  the  buyer  whose  treatment  of  him  has  gained  his  re- 
gard. It  is  conmion  practice  for  a  salesman  who  has 
some  real  bargain  to  offer  to  place  the  proposition  only 
before  those  buyers  whom  he  counts  as  his  personal 
friends. 

A  friendly  salesman  can  also  frequently  do  a  great 
deal  in  the  way  of  facilitating  deliveries,  obtaining  favor- 
able credit  terms,  and  giving  the  purchaser  trade  news 
that  is  of  direct  value  to  him  in  his  work.  It  is  distinctly 
worth  while  for  the  buyer  to  cultivate  the  good  will  and 


188 


SKLLING  AND  BUYING 


fr.eiHl.slii|)  of  tlie  men  with  whom  he  deals,  and  the  most 
potent  factor  in  this  endeavor  is  the  iK)8session  of  the 
quahty  of  tact. 

172.  Other  qualities  important  for  buyer  to  poaseu.— 
Knowled^  and  taet  are  not  the  oidy  qualities  that  the 
buyer  should  possess,  but  they  are  so  exceedingly  impor- 
tant that  they  have  demanded  separate  and  detailed  con- 
sideration. Common-sense,  intelligence,  ability  to  read 
human  nature,  decision,  industry,  loyalty— these  and 
many  more  are  essential  to  success  in  his  work.  The 
man  that  has  proved  the  possession  of  all  the  necessary 
qualities  of  the  successful  salesman  frequently  makes  the 
best  buyer.  He  is  engaged  in  a  big  work;  narrowness 
in  any  particular  will  disqualify  him  for  success,  and  he 
must  strive  for  the  development  of  all  the  qualities  that 
efficiency  in  any  line  of  modern  business  demands. 

173.  Who  should  do  the  buying?— in  the  small  retail 
store  the  proprietor  does  all  the  buying;  and  in  some  of 
the  largest  industrial  corporations  the  careful  purchase 
of  immense  quantities  of  valuable  raw  material  is  so  im- 
portant that  the  president  of  the  corporation  reserves 
this  duty  for  himself.  These  examples  are  typical  of 
one  method  of  modem  buying. 

The  vital  importance  of  this  function  is  so  generally 
recognized  that  in  many  establishments  the  owner  is  un- 
willing to  delegate  the  purchasing  to  any  of  his  subordi- 
nates. He  is  willing  enough  to  allow  others  to  seU  for 
him,  because  he  can  fix  the  prices,  and  even  the  most  in- 
efficient salesman  can  not  immediately  bankrupt  him  or 
permanently  alienate  all  his  trade.  An  inefficient  buyer, 
however,  is  in  a  position  to  do  irreparable  injury  to  his 
employer;  it  is  possible  for  a  single  unwise  purchase  to 
wipe  out  a  season's  profits.  It  is  only  natural,  there- 
fore, that  the  proprietor  should  retain  immediate  super- 


THE  BUYER  AND  HIS  WORK 


189 


vision  over  the  buying  until  the  growth  of  the  business 
makes  it  imiK>ssible  for  him  to  retain  control  of  all  the 
(lettiils  of  the  work,  and  until  he  has  found  a  man  who 
is  capable  of  relieving  him  of  this  imiwrtant  responsibil- 
ity. In  well-developed  retail  and  wholesale  establish- 
ments we  have  found  that  the  heads  of  the  various  goods 
sections  or  departments  are  entrusted  with  the  buying  as 
well  as  with  supervision  over  the  selling  in  their  respec- 
tive departments. 

Each  buyer  knows  more  about  the  goods  he  handles 
than  the  owner  or  general  manager  could  possibly  know. 
Ill  addition  to  his  knowledge  of  the  goods  themselves, 
the  buyer  is  or  should  be  an  expert  on  the  subject  of  de- 
mand, and,  if  he  is  honest  and  loyal  and  thoroughly 
trained  in  his  work,  his  employer's  interests  are  safe  in 
his  hands. 

174.  Factory  purchadng  agents. — In  the  same  man- 
ner that  the  development  of  a  retail  or  wholesale  busi- 
ness requires  the  dealer  to  abandon  the  detail  of  buying, 
the  growth  of  a  factory  organization  renders  it  impossi- 
ble for  the  individual  manufacturer  to  give  his  personal 
attention  to  the  purchasing. 

When  it  is  necessary  to  delegate  this  duty,  one  of  two 
methods  may  be  adopted.  First,  a  member  of  the  firm 
or  an  officer  of  the  corporation  may  be  delegated  to  give 
his  time  to  this  work.  If  there  are  three  members  of  a 
firm  or  three  active  officers  of  a  corporation  engaged  in 
manufacturing,  a  convenient  division  of  authority  is  to 
assign  to  them,  respectively,  supervision  over  produc- 
tion, selling,  and  buying.  In  many  large  organizations 
the  general  manager,  although  he  may  not  attend  to  the 
actual  detail  of  the  buying,  acts  in  an  advisory  capacity 
to  the  purchasing  agent,  and  keeps  a  careful  watch  on 
present  and  prospective  prices. 


190 


SELLING  AND  BUYING 


The  second  method  of  factory  buying  is  to  assign  the 
work  to  an  employed  purchasing  agent.     This  procedure 
IS  common.     Its  chief  disadvantage  is  that  it  places  the 
direction  of  an  activity  that  has  a  vital  bearing  upon 
profits,  m  the  hands  of  one  who  has  only  a  limited  fi- 
nancial  interest  in  the  business.     Its  great  advantage  is 
that  It  places  buying  in  the  hands  of  a  trained  buyer  who 
can  specialize  in  this  activity  and  who  can  attain  a  degree 
of  proficiency  that  can  be  achieved  in  any  line  only 
through  specialized  training  and  experience. 
..  In  view  of  the  great  opportunity  for  disloyalty  and 
graft    in  their  calling,  the  purchasing  agents  of  the 
country  present  a  striking  example  of  the  general  loyalty 
of  employes  to  their  employers  and  of  the  basic  honesty 
which  IS  responsible  for  the  confidence  on  which  our  busi- 
ness system  is  built. 


V 


CHAPTER  XV 


SYSTEM  IN  BUYING 


175.  General  systems  and  specific  conditions. — "No 
universally  applicable  system  was  ever  formulated  for 
any  branch  of  business  activity,  nor  can  it  be,  because 
every  industry  and  every  organization  has  its  individual 
peculiarities  which  must  be  taken  into  consideration  in 
developing  a  system  to  fit  the  business.  In  the  consid- 
eration of  any  business  activity  aU  that  is  possible  is  to 
present  the  general  outlines  of  a  typical  system.  Even 
this  is  difficult  in  the  case  of  purchasing,  because  the 
duties  of  buyers  as  a  class  are  not  clearly  defined,  and  in 
some  organizations  the  authority  of  the  purchasing  agent 
may  be  much  more  extensive  than  in  others.  Generally 
speaking,  buyers  may  be  divided  into  two  classes : 

1.  Those  who  confine  themselves  strictly  to  placing 
and  tracing  orders,  and  have  no  supervision  over  the 
store-room. 

2.  Those  who,  in  addition  to  placing  and  tracing  or- 
ders, are  in  charge  of  the  material  after  it  arrives  and 
are  responsible  for  its  distribution  in  the  factory  or  of- 
fice. 

It  is  evident  that  some  of  the  activities  of  the  second 
class  of  buyers  are  not  concerned  strictly  with  purchas- 
ing, but  are  only  incident  thereto.  In  other  words,  the 
determination  of  what  goods  are  to  be  purchased  and 
their  storage  and  distribution  after  receipt  are  not  neces- 
sarily purchasing  functions.  They  have  been  frequently 
added  to  the  duties  of  the  purchasing  agent  simply  be- 

191 


192 


SELLING  AND  BUYING 


cause  they  are  more  directly  connected  with  his  activities 
than  with  those  of  any  other  member  of  the  average 
organization.  Because  they  are  incidental,  however,  and 
not  fundamental  duties  of  the  buyer's  position,  we  shall 
not  consider  them  in  any  detail  in  this  discussion  of  pur- 
chasing methods.  It  is  our  purpose  to  consider  chiefly 
the  systems  that  guide  the  buyer  in  his  relations  with 
his  sources  of  supply — systems  that  help  him  in  his  essen- 
tial duties  of  placing  and  tracing  orders. 

176.  Requirements  of  an  adequate  purchasing  system. 
— Any  adequate  purchasing  system  must  make  provision 
for  the  following: 

1.  A  method  of  classifying  and  filing  important  data. 

a.  The  articles  that  have  to  be  bought. 

b.  Where  thev  can  be  bought. 

c.  Prices  at  which  they  are  offered. 

d.  Where,  when,  for  what,  and  in  what  quan- 

tities they  have  been  bought  in  the  past. 

2.  A  method  of  ordering  and  of  tracing  orders. 
8.  A  method  of  checking  deliveries  and  invoices. 

177.  Subject  index. — The  first  essential  in  the 
buyer's  system  is  an  accessible  record  of  every  article 
that  he  may  be  called  upon  to  purchase.  This  is  usually 
kept  in  a  subject  index  on  cards  similar  to  Form  No.  1. 

The  cards  are  arranged  in  a  drawer  or  desk  cabinet 
and  are  filed  alphabetically  with  suitable  index  cards  to 
enable  the  buyer  to  find  quickly  any  desired  subject. 
If  the  purchasing  agent  is  required  to  buy  different  sizes 
or  grades  of  the  same  article,  there  is  a  distinct  card  for 
each  size  or  grade  that  may  be  needed.  Each  kind  of 
article  and  each  grade  or  size  has  a  peimanent  stock 
number,  which  appears  on  all  records  in  connection  with 
the  name  or  other  reference  to  the  goods.  The  purpose 
of  each  subject  index  card  is  to  show  the  names  of  the 


SYSTEM  IX  BUYING 
Subject  Index 


193 




Stock  No... 

Name  and  Grade  of  Article 

Suppliers 

^ 


Form  No.  1 


Firm  Index 


Name Tel.  No... 

.\ddress. „. 

Natui:e  of  Business.       

Date 

Catalog,  List,  or  Circular 

File  No. 

Ill— i:i 


Form  \o.  2 


19+ 


Si:i-LING  AND  BUYING 


various  houses  that  cau  supply  the  particular  article 
whose  name  and  stock  numher  appear  on  tlie  card.  If 
all  the  names  of  suppliers  can  not  be  placed  on  one  card, 
as  many  cards  are  used  as  may  be  needed. 

178.  Firm  indccc. — To  supplement  the  subject  index  it 
is  necessary  to  maintain  a  file  that  fs  usually  known  as  a 
firm  index.  Form  No.  2  shows  a  typical  arrangement 
of  the  cards  for  the  firm  index.  The  cards  are  filed  in 
the  same  manner  as  those  that  comprise  the  subject 
index;  and  the  two  sets  of  cards  are  kept  either  in  ad- 
jacent drawers  or  in  twin  desk  cabinets.  One  is  merely 
a  cross  reference  for  the  other. 

The  firm  index  file  contains  important  information 
concerning  every  house  that  might  possibly  supply  the 
buyer  with  any  of  the  material  +hat  he  purchases.  Its 
value  is  in  proportion  to  its  completeness.  There  is  a 
separate  card  not  only  for  each  supplier  from  whuii. 
purchases  have  been  made  or  whose  catalogues  are  on 
file,  but  also  for  every  other  firm  of  whom  the  buyer  may 
learn,  and  who  deals  in  the  material  that  the  buyer  is  re- 
quired to  purchase.  The  word  firm  in  the  name  of  the 
index  is  not  intended  to  restrict  the  use  of  the  file  to  the 
recordhig  of  information  concerning  supply  houses  that 
have  a  partnership  form  of  organization.  Used  in  a 
non-legal  sense,  the  word  is  simply  a  customary  and  con- 
venient generic  term  for  all  business  houses,  irrespective 
of  whether  they  are  conducted  as  individual  enterprises, 
as  partnerships,  or  as  corporations.  Each  card  in  the 
firm  index  contains  the  following  information: 

1.  Name  and  address  of  the  supplier,  with  telephone 
number. 

2.  Nature  of  the  supplier's  business — whether  dealer 
or  manufacturer — with  some  indication  of  the  general 
character  of  the  supplies  handled. 


SYSTEM  IX  BUYING 


19."^ 


3.  Date  when  catalogues,  price  lists,  etc.,  are  received. 

i.  Nature  of  the  data  filed — whether  catalogue,  gen- 
eral circular,  price  hst,  direct  quotation,  etc. 

.).  File  number  showing  where  the  selling  literature 
nf  the  supplier  is  to  be  found. 

When  the  subject  index  and  firm  index  are  first  in- 
tro(hiced  as  the  basis  of  the  buyer's  systematic  record  of 
jjiirchase  data,  a  complete  list  is  made  of  all  the  material 
for  which  it  is  possible  to  foresee  any  need.  The  items 
ill  this  list  are  copied  onto  the  subject  index  cards.  It 
is  then  necessary  for  the  buyer  to  obtain  a  list  of  sup- 
pliers. This  is  compiled  from  his  personal  knowledge, 
horn  information  secured  from  others,  and  from  adver- 
tisements. When  he  learns  of  a  house  dealing  in  any 
article  on  his  subject  index,  he  enters  the  name  of  the 
house  on  the  card  referring  to  that  article.  At  the  same 
time  he  makes  out  a  card  for  the  firm  index,  giving  all 
the  information  he  may  possess  concerning  the  supplier. 
If  he  has  their  catalogue  on  file,  he  makes  a  record  of  that 
fact  on  the  firm  index  card,  and  he  also  makes  proper  no- 
tation in  the  "File  Number"  column,  to  enable  him  to 
tiiul  the  catalogue  readily.  If  the  information  from 
the  supplier  is  in  the  form  of  a  special  price  list,  circular, 
or  direct  quotation,  instead  of  a  catalogue,  that  fact  is 
imted  and  the  necessary  file  reference  recorded.  As 
will  1)6  explained  later,  however,  if  tue  information  is  in 
till'  form  of  a  direct  .quotation,  no  reference  to  the  cata- 
loffiie  file  is  necessary. 

179.  Necessiti/  of  cross-references  for  buying  data. — 
There  are  several  reasons  for  having  two  sets  of  index 
cards  instead  of  combining  all  the  information  in  one  file. 
Aniong  them  are  the  following: 

1.  Each  catalogue  must  be  filed  with  due  regard  for 
its  accessibility.     If  only  one  index  were  kept  and  the 


196 


SELLING  AND  BUYING 


I 


t 


cards  were  filed  according  to  articles  or  subjects,  when 
a  catalogue  was  received  it  would  be  necessarj'  to  record 
its  receipt  and  file  number  on  eveiy  card  in  the  file  that 
referred  to  any  article  listed  in  the  catalogue.  Ob- 
viously, this  would  be  out  of  the  question. 

2.  If,  on  the  other  hand,  the  single  set  of  index  cards 
were  filed  according  to  the  names  of  the  supply  houses, 
the  buyer  would  not  be  able  to  turn  to  any  particular 
card  and  find  thereon  the  names  of  several  dealers  who 
might  supply  him  with  the  article  he  desired  to  purchase. 

If  two  index  files  are  used,  the  buyer  who  wants  to 
purchase  an  article  can  look  up  the  proper  card  in  the 
subject  index.  There  he  will  see  the  names  of  dealers 
handling  that  article.  He  can  then  look  up  those  dealers 
in  his  firm  index,  and  be  referred  immediately  to  the 
price  information  that  has  been  received  from  them. 

180.  Catalogue  file. — The  filing  of  catalogues  and 
other  price  data  is  an  important  feature  of  the  buyer's 
work.  A  good  file  is  made  by  dividing  a  series  of  shelves 
into  pigeon-holes  by  the  use  of  vertical  partitions. 
Each  of  these  pigeon-holes  should  be  large  enough  to 
contain  several  catalogues.  When  a  catalogue  is  re- 
ceived, it  is  usually  bound  with  a  heavy  cover,  on  the 
back  of  which  is  placed  a  number  coinciding  with  the 
number  of  the  pigeon-hole  in  which  it  is  to  be  filed.  The 
necessary  notation  is  then  made  on  the  proper  card  in  the 
firm  index,  and  the  catalogue  is  filed  away.  This  same 
procedure  is  employed  in  the  case  of  price  lists  and  other 
circulars.  It  is  customary  to  have  all  the  catalogues 
from  the  same  house  bear  the  same  number.  For  in- 
stance, Messrs.  Smith  &  Jones'  number  might  be  168. 
Their  first  catalogue  would  be  numbered  163A,  the  sec- 
ond 163B,  the  third  163C,  and  so  on.  All  of  the  cata- 
logues would  be  found  in  file  compartment  Number  168. 


SYSTEM  IN  BUYING 


197 


181.  The  quotation  file. — It  has  been  suggested  that 
artaiii  price  information,  not  contained  in  catalogues  or 
price-lists,  requires  a  special  method  of  filing.  For  this 
purpose  a  quotation  file  is  maintained.  It  consists  of  a 
series  of  cards  on  one  side  of  which  may  appear  the  ar- 
rangement of  columns  and  headings  shown  in  Form  No. 
3.    A  separate  card  is  provided  for  each  article  on  which 

Quotation  File  Card 


Stock  No. 

Name  and  Grade  of  AHicIe 

Supplier 

Date 

Price 

Terms 

Remarks 

... 

' 

Form  No.  3 


a  special  quotation  has  been  received.  The  cards  are 
tiled  alphabetically  according  to  the  names  of  the  articles 
to  which  they  refer,  and  no  cross-reference  file  is  neces- 
sary other  than  the  firm  index. 

Price  data  in  the  quotation  file  are  received  from  those 
suppliers  who  publish  no  general  catalogue  or  price-list, 
or  from  those  who  wish  to  modify  their  published  prices 
oil  individual  articles  for  any  reason  whatever.  Special 
quotations  are  usually  made  either  by  letter  or  by  some 
representative  of  the  supplier  in  person.     When  a  quo- 


198 


SELLING  AND  BUYING 


I  i  '■ 


tatiun  is  received,  the  iiuiiie  of  the  supplier  is  recorded  on 
a  curd  in  the  <iu<)tatioii  file,  together  with  the  date  of  tiie 
(piotation,  the  price,  the  credit  terms,  and  other  data  that 
may  be  deemed  advisable.  If  the  quotation  is  received 
bv  letter,  the  communication  is  filed  under  the  name  of 
the  supplier  from  which  it  came,  and  it  can  be  referred 
to  easily,  if  further  details  are  desired,  by  referring  to 
the  date  of  the  letter  on  the  card  in  the  quotation  file. 

182.  The  order  record. — The  information  contained 
in  the  subject  index,  the  firm  index,  and  the  quotation 
file,  is  not  all  the  purchase  data  that  the  buyer  should 
have  in  the  form  of  permanent,  accessible  records.  He 
should  also  have  easy  access  to  the  record  of  previous 
purchases.  This  information  is  readily  recorded  on  the 
back  of  the  cards  in  the  quotation  file.  It  would  prob- 
ably be  more  correct  to  say  that  quotations  are  recorded 
on  the  back  of  the  cards  in  the  order  record  file,  because 
every  article  purchased  should  have  a  card  in  the  order 
record  file,  while  special  quotations  are  usually  received 
on  only  a  small  proportion  of  the  articles  that  are  pur- 
chased. The  quotation  file,  however,  is  logically  the 
third  in  the  buyer's  system,  and  for  that  reason  it  has 
seemed  advisable  to  discuss  it  before  the  order  record. 
The  only  reason  why  it  is  suggested  that  the  record  of 
(juotations  and  of  orders  be  kept  on  the  same  cards  is 
that  in  both  cases  the  cards  are  filed  alphabetically  by 
articles  handled,  and  it  is  a  saving  of  space  and  material 
to  utilize  both  sides  of  the  cards  rather  than  to  duplicate 
the  entire  set.  A  convenient  method  of  providing  for 
the  necessary  data  on  the  order  record  cards  is  shown  in 
Form  No.  4. 

If  these  cards  are  properly  written  up,  they  present 
the  following  data  regarding  all  articles  that  have  been 
purchased : 


SYSTEM  IN  BUYING 


1»0 


1.  Name  of  the  articles,  with  size  and  grade  if  more 
tiian  one  kind  have  been  bought. 

2.  Dates  of  previous  orders. 

a.  Record  numbers  of  previous  orders. 
4.  Names  of  suppliers. 
'i.  Quantities  purchased. 
0.  Prices  charged. 

7.  Dates  when  the  goods  were  received. 

8.  General  remarks;  for  example,  condition  of  goode 
when  received. 

Order  Record 


Stock  No 

Name  and  Grade  of  Article                                                                | 

):ito 

No. 

Supplier 

(Quan- 
tity 

rrice 

Date 
Ke<*d 

Remarks 



.    _l 

Furm  .Vu.  4 
(Reverse  Side  of  Form  No.  3) 

Of  course,  with  simply  the  order  number  the  buyer 
should  be  able  to  obtain  all  this  information  by  looking 
i!p  the  original  order  in  his  files.  It  is  o.  great  advant- 
age to  him,  however,  to  have  all  the  foregoing  data  im« 
mediately  before  him  where  he  can  turn  to  it  readily  and 
utilize  it  in  determininjj  where  to  place  his  orders.  Such 
a  record,  also,  is  of  value  in  enabling  the  buyer  to  fol- 


wo 


SKLLING  AM)  BUYING 


low  Die  luovc'imiit  ol'  prices  for  any  particular  coinniod- 
ity,  and  Inmi  past  changes  to  «Ira\v  some  convlusions  as 
to  future  fluctuations. 

It  has  been  stated  that  the  first  essential  of  any  buy- 
ing  system  is  to  [)rovide  for  classified  purchase  informa- 
tion. The  four  card  forais  that  have  been  described 
ordinarily  give  this  data  in  sufficient  detail.  With  such 
a  system  in  oi>eration  the  buyer  knows  what  goods  he 
requires,  where  they  can  be  bought,  the  prices  at  which 
they  are  offered,  and  where,  when,  for  what,  and  in  what 
(piantities  they  have  been  purchased  in  the  past. 

183.  Placing  orders. — The  second  requisite  of  a  pur- 
chasing system  is  a  method  of  placing  and  tracing  or- 
ders. It  should  be  remembered  that  in  the  elementary 
system  that  we  are  considering  the  buyer  does  not  have 
to  determine  when  and  what  to  order.  This  is  decided 
by  the  general  manager  or  the  stock-keeper,  by  whom  a 
purchasing  requisition  is  sent  to  the  purchasing  agent. 
Upon  receipt  of  the  requisition  the  buyer  uses  the  va- 
rious classes  of  data  that  have  been  described,  and  decides 
with  whom  he  will  place  the  order.  He  then  fills  out  a 
regular  order  blank,  which  usually  provides  for  the 
following  data: 

1.  Name  and  address  of  house  from  which  the  goods 
are  ordered. 

2.  Exact  quantity  and  kind  of  goods  desired. 

3.  Price  at  which  the  buyer  understands  the  shipment 
is  to  be  billed.  (This  item  is  not  frequently  found  in 
orders. ) 

4.  When  goods  are  desired. 

5.  Shipping  instructions. 

6.  A  serial  number  with  a  request  that  the  number  be 
placed  upon  the  shipper's  invoice. 

7.  Conditions  under  which  the  order  is  placed ;  as,  for 


SYSTEM  IN  nrVINT. 


mn 


instance,  compliance  with  the  instructions  alnnit  placing 
Older  number  upon  invoice,  making  delivery  when  re- 
quested, ailowinjf  certain  credit  terms,  etc.  The  order  is 
ordinarily  made  in  triplicate  by  the  use  of  carbon  paper, 
each  impression  being  on  paper  of  a  different  color. 
The  original  order  goes  to  the  house  that  is  to  supply  the 
jroods,  the  first  carbon  copy  is  sent  to  the  receiving  clerk 
or  stock-keeper,  and  the  last  carbon  coi)y  is  retained  by 
the  buyer.  The  purpose  of  sending  one  copy  to  the  re- 
triving  clerk  will  he  explained  later.  For  the  present 
we  are  interested  only  in  the  copy  that  is  kept  in  the  office 
ol'  the  purchasing  agent.  This  is  used  to  trace  the  order 
and  to  check  the  invoice  when  the  goods  are  received. 
I'or  this  purpose  the  back  of  the  buyer's  copy  of  the 
order  has  spaces  j>rovided  for  four  classes  of  informa- 
tion: 

1.  Correspondence  sent. 

2.  Correspondence  received. 
a.  Goods  received. 

4.  Invoices  received  and  checked. 

184.  Tracing  orders.— An  actual  example  will  illus- 
trate how  the  buyer  keeps  track  of  orders  that  he  has 
|)laced.  Suppose,  for  example,  that  an  order  is  for- 
warded to  a  supplier  on  the  fifth  of  the  month,  and  that 
an  acknowledgment  may  be  expected  by  the  eighth. 
The  buyer  places  his  copy  of  the  order  in  a  folder  which 
l)tai*s  the  number  8  in  his  "tickler"  file.  If  an  acknowl- 
fd^ient  is  received  on  or  before  the  eighth,  the  order  is 
taken  out  of  the  No.  8  file  compartment,  and  the  fact 
that  acknowledgment  was  received,  with  the  date,  is 
noted  on  the  back  of  the  order  under  the  heading  "cor- 
rispondence  received."  If  acknowledgment  is  not  re- 
ceived by  the  eighth,  the  order  automatically  comes  to 
the  buyer's  attention  on  that  date;  he  writes  requesting 


non 


SKM.INd  AM)  DrVING 


immediate  acknowlcd^im'iit,  and  plucrs  the  order  ahead 
in  the  file  folder  representing  the  date  on  wliieli  he  eaii 
reasonably  exi)ect  to  reeeive  a  reply.  At  the  same  time, 
on  the  back  of  the  order  under  the  headin;;^  "eorresiKJnd- 
ence  sent,"  he  makes  notation  of  the  fact  that  he  has  had 
to  write  for  acknowledgment,  with  the  date  of  his  letter. 

When  the  acknowledgment  is  received,  it  is  necessary 
to  place  the  order  ahead  in  the  "tickler"  file  so  that  de- 
livery can  l)e  traced  if  the  goods  do  not  arrive  within  a 
reasonable  time.  The  supplier  may  have  prontised  de- 
livery on  a  certain  date,  or  it  may  be  necessary  for  the 
buyer  to  estimate  the  probable  delivery  date.  Under 
either  condition  the  order  is  placed  in  the  folder  bearing 
the  same  number  as  the  day  of  the  month  when  deliver}' 
is  to  l>e  expected.  If  the  goods  are  not  on  hand  on  that 
day,  the  order  is  taken  out  of  the  file,  and  exactly  the 
same  method  of  tracing  is  pursued  as  was  the  case  when 
the  acknowledgment  did  not  arrive  promptly.  When  the 
goods  are  received,  notation  is  made  on  the  back  of 
the  order  under  the  heading  "goods  received."  If  par- 
tial deliveries  are  made  at  intervals,  as  is  frequently  done 
in  the  case  of  large  orders,  each  separate  delivery  is  noted 
on  the  back  of  the  order,  with  the  exact  amount  delivered 
in  each  instance;  and  the  order  is  not  considered  filled 
until  the  total  amount  ordered  has  been  received. 

185.  Checking  deliveries. — Before  we  follow  the  buy- 
er's copy  of  the  order  to  the  time  when  it  can  be  removed 
from  the  "tickler"  file,  we  must  consider  the  system  by 
which  the  buyer  knows  when  the  goods  have  been  re- 
ceived. We  have  said  that  one  copy  of  the  oider  goes 
to  the  receiving  clerk.  This  is  to  inform  him  that  the 
goods  are  expected,  so  he  can  make  room  for  them  in 
the  store-room.  When  the  goods  arrive,  he  checks  the 
quantities  with  the  order  and  makes  notations  of  any 


SYSTKM  IN  BUYING 


!^0.') 


.k  IVfts.  TIjc  copy  of  the  order  is  then  returned  to  the 
liuytr.  This  inetho<l  is  simple,  but  it  has  certain  <lis- 
advantages.  If  tlie  receiving  clerk  has  l)efore  him  an 
oilier  showing  the  exact  (piantity  of  the  goods  to  be  re- 
ciived,  he  is  likely  to  be  careless  in  actually  counting  the 
number  of  pieces  in  the  delivery,  and  to  take  it  for 
orunted  that  the  number  ordeied  were  received.  To 
avoid  this  difficulty  it  is  sometimes  customary  to  use  a 
short  piece  of  carbon  paper  in  making  the  first  carbon 
copy  of  the  order,  so  that  the  quantities  of  the  various 
articles  ordered  do  not  appear  on  the  receiving  clerk's 
copy  of  the  order.  He  then  has  to  count  the  shipment 
and  to  place  the  exact  figures  on  the  order  sheet  before 
he  returns  it  to  the  buyer. 

186.  Checking  partial  deliveries.— The  method  of 
guarding  against  carelessness  in  checking  orders  that 
has  been  described  in  the  preceding  paragraph  is  feasi- 
ble only  when  all  the  goods  ordered  are  delivered  at  one 
time.  When  partial  deliveries  are  free:,  jnt,  a  system 
similar  to  the  following  is  advisable:  If  a  copy  of  the 
order  is  sent  at  all  to  the  receiving  clerk,  it  is  simply  to 
give  him  advance  information  of  the  arrival  of  the  mer- 
chandise, and  it  is  not  used  in  checking  deliveries.  At 
the  close  of  each  day  the  receiving  clerk  fills  out  a  blank 
form  that  gives  the  following  information  about  every 
delivery  that  has  been  made  during  the  day: 

1.  Name  and  atldrchs  of  sliipper. 

2.  Description  of  goods. 

3.  Quantity  of  goods. 

4.  Apparent  condition  of  goods  on  arrival. 

5.  Method  of  delivery,  name  of  railroad,  etc. 

With  this  sheet  before  him,  the  buyer  can  go  over 
his  unfilled  orders  and  make  the  necessary  notations  .  f 


-'**  SKLFJXG  AND  BUVING 

(Iclivcrics  on  the  hacks  of  his  copies  of  tlie  orders.  By 
this  system  partial  dehveries  are  cheeked  and  reported 
to  the  huyer  as  rea(h'ly  as  complete  dehveries. 

The  final  result  of  any  system  of  checkin^r  and  report- 
in^r  is  to  inform  the  huyer  of  the  status  of  his  orders. 
AVhen  an  order  has  been  only  partially  filled,  it  is  re- 
tained in  the  "tickler"  file,  and  so  placed  as  to  come  up 
automat-ically  for  attention  on  the  date  Avhen  another 
shipment  can  be  expected.     As  heretofore  explained, 
every  letter  written  by  the  buyer  or  received  by  him 
from  the  supplier  with  reference  to  any  order,  together 
with  a  record  of  all  deliveries,  is  noted  on  the  back  of 
the  order.     If  at  any  time  he  desires  more  detailed  in- 
formation than  is  contained  in  the  brief  record  on  the 
order  itself,  the  notations  enable  him  to  refer  to  his  cor- 
respondence file  for  such  letters  as  he  may  wish  to  see. 

187.  Checking  the  invoice.— When  the  oi-der  is  finally 
filled,  an  invoice  accompanies  the  shipment  or  is  sent  by 
mail  to  the  consignee.  The  invoice  ordinarily  goes  im- 
mediately to  the  buyer.  He  frequently  has  a  rubber 
stamp  with  which  he  may  provide  for  information  of  the 
following  nature  to  be  given  on  the  face  of  the  invoice: 

Goods  received 

Price  O.K 

Extension   O.K 

Distribution 

Account   No jb 

Account   \o >fe 

Account   Xo jfe 

Total $ 

The  buyer  knows  whether  or  not  the  goods  have  been 
received,  but  in  order  to  have  a  double  check  '-i  this  item, 


m^ 


SYSTEM  IN  BUYING 


aos 


he  sends  the  invoice  to  the  receiving  clerk,  who  has  kept 
a  record  of  all  receipts.  The  receiving  clerk  places  his 
name  or  initials,  with  the  date,  after  the  phrase  "goods 
received."  The  invoice  is  then  returned  to  the  huyer. 
Fiither  he  or  one  of  his  clerks  compares  the  prices 
charged  with  the  quotations  or  catalogue  figures,  and 
\erities  the  extensions.  The  name  or  initial  of  the  per- 
son who  makes  the  comparison  and  checks  the  multipli- 
cation is  inserted  in  the  proper  place,  with  the  date  of  the 
operation.  After  tiie  purchasing  agent  has  made  his 
own  record  of  the  receipt  of  the  goods  and  of  the  check- 
ing of  the  invoice,  his  duties  in  regard  to  the  order  are 
completed.  His  copy  of  the  order  may  be  removed 
from  the  "tickler"  file,  and  filed  permanently  according 
to  the  order  number.  The  invoice  is  sent  to  the  stock 
clerk  or  to  some  one  else  who  knows  the  uses  to  which  the 
gr)ods  that  have  been  received  are  to  be  put,  and  these 
uses  are  indicated  by  noting  on  the  invoice  the  accounts 
to  v/hich  the  purchase  is  to  be  charged.  The  invoice  is 
now  ready  to  go  to  the  accounting  department  for  entry 
upon  the  books  of  account,  and  for  payment. 

The  details  of  a  purchasing  system  may  differ  greatly 
in  individual  cases,  but  most  of  the  features  that  have 
been  described  are  found  in  the  majority  of  houses. 
I'erhaps  the  greatest  variations  are  found  in  the  method 
of  handling  the  invoice  after  its  receipt.  It  is  not  at  all 
necessary  for  the  successful  operation  of  the  system  that 
the  employes  who  check  the  invoice  and  who  indicate  the 
distribution  of  the  charge  among  the  various  accounts 
be  the  ones  we  have  mentioned.  In  fact,  in  an  organiza- 
tion that  has  a  system  of  cost  accounting  in  operation, 
the  method  of  determining  the  distribution  of  the  charge 
is  much  more  complicated  than  the  simple  system  we 
have  described.     This  is  purely  an  accounting  matter. 


206 


SELLING  AND  BUYIN(J 


however,  and  the  variations  in  the  methods  of  handhng 
it  have  no  bearing  on  the  purchasing  system. 

188.  The  perpetual  inventory. — We  have  considered 
only  a  method  of  purchasing  goods  after  their  need  is 
known.  Few  buyers,  however,  have  so  simple  a  task. 
The  purchasing  agent  is  frequently  in  charge  of  the 
supplies,  and  he  must  have  a  system  that  will  enable  him 
to  know  when  purchases  are  necessary.  This  informa- 
tion is  customarily  obtained  from  a  form  known  as  a 
perpetual  inventory.  A  suggestive  arrangement  of  this 
record  is  shown  in  Form  No.  5.  A  card  or  loose-leaf 
record  sheet  is  provided  for  each  kind  and  size  of  article 
used.  The  data  on  this  record  gives  the  buyer  the  fol- 
lowing information: 

1.  Minimum  and  maximum  quantities  of  the  article 
that  should  be  on  hand,  together  with  an  average  that 
may  be  considered  as  normal. 

2.  On  what  dates  and  in  what  quantities  supplies  of 
the  article  have  been  ordered. 

3.  Amounts  received  on  any  date,  as  well  as  quanti- 
ties taken  from  the  store-room  for  use  in  the  factorj', 
office,  or  store. 

4.  From  the  above  data,  a  daily  balance  of  stock  on 
hand  is  obtained.  This  figure,  in  comparison  with  the 
minimum,  normal,  and  maximum  figures  at  the  top  of 
the  form,  tells  the  buyer  whether  or  not  new  purchases 
are  necessary. 

5.  For  the  purposes  of  cost  accounting,  the  prices  of 
goods  ordered  and  received  are  frequently  shown  on  the 
perpetual  inventory.  This  information,  however,  is  not 
necessary  for  the  purposes  of  the  buyer,  because  the  same 
data  is  given  on  his  order  record.  For  that  reason  no 
provision  is  made  for  it  in  the  suggestive  arrangement 
of  columns  in  Form  No.  5. 


SYSTOI   IV  BUYING 


201 


\£      a 
?  c  ^ 


t: 


X 


o 

c 

> 
c 


3 

a 

u 
0. 


it 


;0 

'  a 
i 


■< 

o 


e 

3 


'3  0 


s 

3S 


0j 


o 


K 

a 

as 


s 

3 


O 


I 


s 


■< 


208 


SELLING  AM)  BUYING 


189.  Modification  of  the  typical  purchasing  system.— 
It  sliouki  be  remembered  that  the  systems  and  forms 
that  have  been  described  are  of  the  most  simple  charac- 
ter. There  may  be,  and  often  are,  many  other  forms 
for  use  in  making?  requisitions  upon  the  purcl  i^  agent 
and  in  the  disbursement  of  supphes  from  the  .store-room. 
Ordinarily,  however,  they  are  not  immediately  con- 
cerned with  the  strictly  buying  activities,  and  for  that 
reason  it  is  not  necessary  to  give  them  consideration  in  a 
general  discussion  of  the  duties  and  methods  of  the  pur- 
chasing department.  The  essential  purchase  data  is 
l^rovided  by  the  forms  that  have  been  described.  There 
may  be  variations  in  details,  and  there  may  even  be  ad- 
ditions to  the  number  of  forms  that  comprise  the  system. 
The  peculiar  requirements  of  individual  businesses,  of 
course,  always  determine  the  number  and  kind  of  forms 
to  be  used.  It  should  be  borne  in  mind,  however,  that 
the  usefulness  of  any  form  is  not  the  only  thing  to  be 
considered  in  determining  whether  it  is  to  be  emploj-ed. 
Every  form  re(j[uires  a  certain  amount  of  clerical  labor 
to  record  the  data  for  which  it  makes  provision,  and 
sometimes  the  value  of  the  information  is  not  worth  the 
amount  of  time  and  energy  necessary  to  record  it.  The 
value  of  any  form,  therefore,  must  be  determined  by 
balancing  its  usefulness  against  the  difficulty  of  its  prep- 
aration. If  the  former  factor  is  outweighed  by  the 
latter,  the  form  should  not  be  used. 

190.  System  in  retail  buying. — The  purchasing  sys- 
tem that  has  been  described  applies  particularly  to  a 
manufacturing  industry.  Its  essential  features,  how- 
ever, are  equally  applicable  to  a  retail  store,  but  with  this 
very  important  modification  in  nu"nd — it  is  usually  im- 
practicable to  keep  an  accurate  stock  record  of  every 
article  that  is  handled.     In  a  grocery  store,  for  instance, 


SYSTEM  IN  Bi; VINCI 


:oy 


it  is  out  of  tlie  question  to  maintain  a  perpetual  inventory 
that  \\i\\  show  eveiy  cake  of  soap  or  pound  of  su^ar  or 
can  ()''  corn  that  is  sold.  The  smallest  units  that  the 
l)ii\ tr  needs  to  consider  in  the  case  of  articles  of  this 
iliaracter  are  hoxes  of  soap,  harrels  of  sugar,  and  cases 
of  carmed  corn.  In  otlier  words,  whenever  an  original 
package  is  broken,  it  appears  on  the  buyer's  records  as 
having  gone  out  of  stock. 

The  small  retail  store  that  purchases  a  large  part  of 
its  stock  from  a  single  jobber  would  scarcely  require  all 
the  forms  that  have  been  considered.  It  would  cer- 
tainly not  need  to  maintain  a  firm  index,  and  possibly 
the  (juotation  file  would  not  be  of  value.  The  subject 
index,  the  order  record,  and  the  perpetual  inventory, 
however,  could  be  used  to  advantage  even  in  a  very  small 
establishment.  Retail  stores  are  frequently  almost  en- 
tiiely  lacking  in  system  in  their  buying  methods.  Many 
dealers  order  only  when  a  salesman  calls  upon  them. 
Then  they  hastily  look  over  tlieir  stock,  or  allow  the 
salesman  to  do  it  for  them,  and  make  up  an  order  ac- 
cording to  the  result  of  this  brief  obsei'vation.  It  is  a 
common  experience  for  a  retailer  to  be  "out"  of  an  ar- 
tiele  for  which  there  is  a  steadj'^  demand.  Almost  in- 
variably the  cause  of  this  annoying  situation  is  lack  of 
system  in  buying. 

There  are  some  dealers  who — paradoxical  as  it  may 
seem — permit  a  traveling  salesman  who  has  gained  their 
confidence  to  order  for  tiiem  what  he  thinks  they  need, 
(111(1  there  are  even  a  few  who  allow  a  jobber  a  hundred 
miles  away  to  send  on  such  an  assortment  and  such 
(|uantities  of  goods  as  he  may  deem  proper.  The  dealer 
who  pursues  any  of  these  methods  is  not  in  line  for  the 
f?reatest  success.     It  is  entirely  right  for  him  to  accept 

the  advice  of  those  who  may  be  more  experienced  in 

III— u 


210 


SELLING  AND  BUYING 


stocking  up  a  store  than  he  is,  but  he  is  a  poor  merchant 
unless  he  learns  to  do  his  own  buying.  If  he  does  not  do 
so,  it  is  because  he  does  not  know  his  own  stock,  and  the 
reason  for  his  ignorance  is  usually  lack  of  system  in  his 
business. 

There  is  no  retailer  who  can  not  use  a  carefully  devel- 
oped buying  system  to  advantage,  and  in  the  largest  and 
most  successful  stores  the  purchasing  methods  are  as 
carefully  worked  out  as  they  are  in  the  most  highly  de- 
veloped manufacturing  organization. 

191.  The  jobber's  purchasing  system. — The  jobber 
is  in  a  more  favorable  situation  than  the  retailer  with 
respect  to  his  ability  to  keep  accurate  stock  records,  be- 
cause he  does  not  ordinarily  deal  in  broken  packages. 
There  are  some  jobbers,  however,  who  are  as  lax  in  their 
buying  methods  as  are  many  small  retailers,  but  their 
limited  success  is  evidence  of  the  fact  that  carelessness  in 
buying  is  as  fatal  to  volume  of  business  and  to  profits,  as 
carelessness  in  any  other  of  the  important  business  activi- 
ties. The  wholesale  dealer  purchases  from  a  large  num- 
ber of  manufacturers  and  he  usually  handles  a  very  great 
variety  of  articles ;  if  he  is  to  be  able  to  fill  the  orders  of 
his  customers  at  all  times,  he  must  use  systematic  meth- 
ods in  order  to  keep  his  stock  complete.  The  subject  in- 
dex, the  firm  index,  the  quotation  file,  the  order  record, 
and  the  perpetual  inventory  provide  detailed  purchasing 
information  that  is  as  important  to  the  jobber  as  it  is  to 
the  factory  buyer.  The  buying  in  a  wholesale  house  is 
usually  done  by  departments,  and  there  must,  therefore, 
be  a  distinct  purchasing  system  for  each  department. 
This  is  also  the  case  in  retail  stores  in  which  there  is  de- 
partmental division  of  the  buying.  As  a  result  of  this 
characteristic  feature  of  the  buying  in  wholesale  and  re- 
tail establishments,  certain  changes  in  the  typical  factory 


SYSTEM  IN  BUYING 


Sll 


liii\  ing  system  are  necessary,  chiefly  with  respect  to  the 
airan^ement  of  some  of  the  forms  and  the  routine  of 

iirdcrs. 

W'liatever  may  be  the  changes  in  detail,  due  to  the 
;v(|iiirements  of  the  individual  business,  the  general  na- 
ture of  the  buying  data  to  be  recorded  remains  approxi- 
mately the  same  in  all  instances;  and  there  are  few  in- 
dustries in  which  the  demand  for  a  suitable  method  of 
systematizing  the  purchasing  can  not  be  met  by  some 
application  of  tho  fundamental  principles  that  are  at 
tlie  basis  of  the  system  described  in  this  chapter. 


PART  II:  CREDIT  AND  THE 
CREDIT  MAN 


CIIAPTKH  I 
NATURE  OF  CREDIT 

1.  Relation  of  conjidcticc  to  business. — Confidence 
is  the  basis  of  all  business  relations,  which  simply  means 
that  in  order  for  business  to  be  carried  on  men  must 
trust  one  another.  In  that  sta^e  of  society  when  men 
only  exchanged  goods  when  there  was  opportunity  for 
personal  inspection,  and  where  the  actual  goods  passed 
from  one  person  to  another,  a  certain  amoimt  of  confi- 
dence must  have  existed  between  the  traders.  But  this 
was  the  confidence  of  a  condition  of  truce  rather  than  a 
trust  in  the  commercial  honesty  of  either  of  the  barter- 
ers.  jNIen  were  primarily  fighters  in  those  days,  and  the 
exchange  of  goods  by  barter  was  simply  an  improve- 
ment upon  the  still  earlier  method  of  the  transfer  of 
goods  through  concpiest. 

When  men  began  to  surrender  their  ])()ssessions  by 
means  of  barter  rather  than  by  articles  of  capitulation, 
there  was  evidence  of  a  growth  of  confidence  between 
them  which  at  least  showed  that  each  felt  secure  of  his 
personal  safety  during  the  trade.  The  development  of 
society  from  the  earlier  condition  of  perpetual  hostility 
between  individuals,  through  the  various  stages  of  hos- 
tile distrust  betM-een  families,  clans,  tribes,  nations  and 
races,  to  the  time  when  the  world  holds  that  "each  miin's 
word  is  as  good  as  his  bond,"  has  been  and  will  be  of 
slow  growth.     This  development,  to  l.e  sure,   is  not 

2ia 


NATl  RK  OF  ('RKI)IT 


21.'} 


(iimplctc  as  yet,  but  it  can  be  measured  by  tbe  extension 
(if  man's  confidence  and  laitb  in  man.  And,  although 
nations  still  build  battleships  to  protect  their  commercial 
iiitirests,  nevertheless  it  has  become  universally  ac- 
kiiowledjjfed  that  confidence  is  the  basis  upon  which  our 
wliole  business  structure  rests. 

•_'.  Contracts  support  confidence. — During  this  long 
evolutionary  period,  society  encouraged  the  growth  of 
llu-  spirit  of  confidence  by  various  means,  and  as  men 
often  describe  a  thing  in  terms  of  the  means  by  which 
the  object  was  accomplished,  it  is  well  to  note  by  what 
iiiiaiis  society  has  encouraged  and  protected  men's  con- 
tidtnce  in  each  other.    The  law  of  contract  has  been  one 
(if  the  chief  means  in  accomplishing  this  end.     Hence 
wc  find  the  lawyer  describing  the  growth  of  civilization 
as  a  development  from  a  condition  of  status  to  a  condi- 
tion of  contract.    That  is,  under  the  earlier  condition, 
society  decreed  that  every  man  had  a  right  to  carry  on 
his  method  of  making  a  living  with  the  assurance  that  his 
economic  relations  with  other  men  would  be  protected  so 
long  as  his  actions  conformed  to  the  customary  usages. 
So  men  paid  customary  rents,  received  customary  wages 
and  charged  customary  prices;  in  fact,  business  relations 
(if  all  kinds  were  limited  and  restricted  by  the  customs 
which  had  been  established  by  earlier  generations  of  busi- 
ness men.    So  long  as  changes  were  slow  and  few,  men 
(lid  not  feel  the  restrictions  imposed  by  the  necessity  to 
conform  to  usages  established  by  previous  generations, 
l)iit  as  commercial  and  business  relations  were  extended, 
society  found  that  greater  individual  freedom  and  ini- 
tiiitive  were  necessary.    It  was  no  longer  possible  to  find 
s;ii'c  guidance  in  the  customs  of  bygone  ages  for  the 
newer  and  larger  business  relations.     It  became  neces- 
siiiy  to  permit  each  individual  to  enter  into  a  bargain 


f>U 


C  HKDir  AM)  Tin:  (  UKDIT  MAN 


upon  sucli  terms  as  he  felt  we""  most  advantttgeous  to 
himself.  He  eoiild  no  longer  he  hound  hy  customs 
more  applieahle  to  a  past  generation  than  to  his  own 
environment.  Men  tlierefore  formed  contracts  with  one 
another,  pledging  themselves  to  the  performance  of 
some  act  in  the  future.  As  this  element  of  future  time 
entered  into  men's  husiness  relations  more  and  more,  it 
hecame  increasingly  necessary  to  jjrotect  the  confidence 
upon  which  these  husiness  relations  rested.  Therefore 
we  find  to-day  that  the  basic  law  of  the  business  world  is 
the  one  which  severely  punishes  any  act  impairing  the 
obligation  of  a  contract.  So  closely  allied  are  the  two 
ideas  of  contract  and  confidence  that  they  are  sometimes 
united  into  one  concept,  called  credit.  When  so  united 
credit  is  defined  as  "a  right  of  action,"  which  may  be 
called  the  legal  concept  of  credit. 

3.  Monei/  a  sign  of  economic  progress. — Various 
measures  are  used  in  determining  the  progress  of  so- 
ciety, but  perhaps  there  is  none  more  illuminating  or 
suggestive  than  that  which  gauges  civilization  by  the 
readiness  and  facility  with  which  exchange  of  possession 
or  ownership  takes  place.  Under  a  system  of  exchange 
where  ownership  was  surrendered  by  one  person  to  an- 
other through  barter,  the  number  of  transfers  was  neces- 
sarily limited  by  many  causes  too  evident  to  mention. 
As  soon,  however,  as  men  could  trust  to  a  common 
medium  of  exchange  which  in  time  was  called  money, 
they  were  no  longer  so  closely  tied  to  time  and  place  in 
order  to  effect  a  transfer  of  their  property.  But  the 
change  from  "barter"  to  a  "money"  economy  means 
more  than  a  substitution  of  one  system  for  another.  It 
signifies  the  development  of  society  from  the  low  plane 
of  ignorance  and  suspicion  to  a  higher  plane  of  intelli- 
i,ence,  wider  information  and  Increased  confidence.     So 


NATURE  OF  t  KEDIT 


aio 


tl,.„oughly  did  the  advantages  of  the  "money"  economy 
impress  itself  upon  the  people  of  that  period,  that  lor 
centuries  they  believed  that  money  was  identical  with 
u.alth  itself.     With  such  universal  confidence  m  the 
inetuls  which  were  used  as  the  media  of  exchange,  it  is 
easily  seen  that  few  people  would  deem  it  necessary 
t„  resort  to  barter  in  order  to  eifect  an  exchange  of 
g,K)ds.     But  the  point  to  be  noted  is,  that  no  such  step 
Worn  barter  to  money  could  have  been  effected  without 
an  increase  in  the  confidence  and  trust  which  men  were 
generally  acquiring  in  one  another.     The  fact  that  with 
the  growing  complexity  and  increase  of  business  there 
were  one  or  two  commodities  which  were  universally 
recognized  as  having  general  purchasing  power  made  it 
easy  to  take  another  step  upward  in  the  economy  of 
trade.     This  was  done  by  again  extending  the  scope  of 
()l)erations  dependent  upon  confidence. 

4.  Bargains  ichich  involved  future  delivery.— The 
direction  of  the  next  extension  lay  in  bargaining  for 
fnture  delivery  of  goods  or  services.     Under  the  older 
nionev  economy,  men  exchanged  goods  for  money  and 
vice  versa,  and  the  chief  risks  incurred  were  those  inci- 
dent to  the  loss  through  theft  or  accident;  for  under  a 
barter  or  a  money  economy  the  exchanges  of  goods  or 
money  were  performed  by  both  parties,  who  delivered 
their  commodities  at  the  same  moment.    With  the  intro- 
(hiction  of  this  new  element  of  future  time  into  trans- 
actions, new  risks  were  also  introduced  and  these  had  to 
])e  provided  for.     This  was  done  by  simply  substituting 
a  promise  to  pay  money  in  the  future  to  the  party  who 
delivered  his  goods  in  the  present.     Upon  this  simple 
provision  was  founded  our  modern  system  of  doing  busi- 
ness.   Thus  it  is  that  some  nations  passed  from  a  money 
to  a  credit  economy  and  confidence  and  trust  became 


'i\(i 


( Hi:i)iT  AND  riii:  (  ukdi'I'  man 


not  (.Illy  litlpful  factors.  Imt  the  viry  Imsis  of  the  struc- 
ture of  industry.     To  <|uote  one  authority: 

yUmvy  vcmimiy  nuw  lilnriy,  cmlif  gave  opportunity.  By 
credit  the  ennip»titive  .system  Ims  cleveloped  so  as  to  l)e  able  to 
replace  tlio  primitive  group  system,  and  even  surpassed  its  ue- 
complisl.ments.  Without  credit,  individuals  oouhl  not  extend 
their  operations  so  as  to  sup.rsedc  the  collective  system  which 
subsisted  as  some  form  of  natural  or  involuntary 'cooperation 
until  the  ilsc  of  credit  in  Kurope. 

Under  an  organization  of  crc(ht  economy  undertak- 
ings are  carried  on  hy  men  who  may  acquire  title  to 
capital,  not  by  delivering  an  eciuivalelit  at  the  time  of 
acquisition,  but  by  a  method  which  divided  the  two  parts 
of  a  transaction,  the  receipt  and  liie  delivery,  by  a  eon- 
siderable  period  of  time.     This  is  the  distinguishing 
feature  of  the  new  system  of  exchange.     This  is  the 
I)eculiar  mark  of  the  newer  credit  economy.     Under  this 
sinq)le  arrangement  by  which  the  borrower  promises  to 
pay  a  certain  sum  of  money  at  some  future  date  in 
return  for  goods  delivered  to  him  in  the  present,  the 
field  of  industrial  activity  has  been  widened  and  extended 
in  harmony  with  the  forces  of  production  which  were 
demanding  new  outlets  for  its  surplus.     We  said  "har- 
mony," but  not  perfect  harmony. 

5.  The  relation  of  money  to  credit.— The  close  and 
vital  connection  between  the  new  system  of  exchange 
and  the  older  money  economy  is  not  generally  recog- 
nized. It  will  be  noticed  that  not  only  is  one-half  of 
the  transaction  to  be  performed  at  some  future  date,  but 
the  contract  calls  for  a  deliNcry  of  money.  Any  system 
of  exchange,  therefore,  that  does  not  provide  for  the 
close  and  ready  cooperation  between  the  money  needs 
of  a  country  and  the  credit  needs  of  the  same,  will  often 


NATUHK  or  (  IlKDIT 


yi: 


tiiul  its  wlmle  industrial  system  thrown  into  disorder  by 
this  nialadjustnient.  The  l)est  known  illustration  of 
the  way  credit  coiiperates  and  aids  money  is  seen  in  the 
hanking  business/ 

r..  Banking  and  credit. — Because  of  the  central  po- 
sition which  the  banks  of  a  nation  hold  in  the  credit 
s\  stem  as  dealers  in  credit,  the  result  of  anv  disturbance 
affecting  the  public  confidence  is  first  observed  in  the 
hanks*  attempt  to  protect  their  cash  reser\'es.  This 
often  necessitates  the  calling  in  of  certain  lines  of  credit, 
which  means  that  some  class  or  classes  of  business  men 
must  find  the  money  to  meet  the  banks'  demands.  Thev 
ill  turn  are  also  compelled  to  call  in  some  of  their  credit, 
and  thus  it  is  that  the  demand  for  money  is  scattered  far 
and  wide,  while  at  the  same  time  no  one  is  offering 
(irdit.  So  panics  begin  and  spread  until  every  business 
tinii  which  has  used  credit  in  its  operations  is  aff'ected. 
Many  are  ruined  because  they  can  not  meet  the  demand 
upon  them  to  pay  money,  and  others  are  injured  by 
licing  compelled  under  the  immediate  pressure  to  turn 
valuable  goods  into  money  at  a  great  loss,  while  all  en- 
terprises are  hurt  indirectly  by  the  general  industrial 
depression. 

The  practical  point  to  be  observed  here  is  that  the 
ivhition  which  the  cash  reserves  of  the  banks  hold  to 
their  outstanding  credits  is  a  fairly  good  guide  to  the 
husiness  man  in  judging  whether  or  not  it  is  advisable 
to  extend  or  contract  his  commercial  credit  operations. 

7.  Relation  of  credit  to  panics  and  depressions. — 
A  study  of  the  great  panics  and  depressions  which  have 
occurred  at  various  periods  during  the  last  one  hundred 
years  discloses  in  each  case  a  constantly  growing  dis- 
proportion between  the  reserves  and  the  liabilities  of  the 

1  See  volume  on  Money  axu  Baxkixo. 


218 


CREDIT  AND  THE  CREDIT  MAN 


banks  just  before  the  business  world  has  been  plunged 
into  a  financial  crisis.  In  every  case  the  immediate  cause 
of  the  panic  was  the  inability  of  the  two  essential  factors 
in  the  credit  system  to  cooperate  effectively  at  the  crit- 
ical moment.  This  defect  lies  partly  in  the  faults  of 
banking  and  currency  systems,  but  more  fundamental 
still  is  the  fact  that  though  our  industrial  system  is 
founded  on  confidence,  there  are  still  many  men  in  every 
community  who  are  not  yet  fitted  to  participate,  without 
restriction,  in  a  system  which  depends  for  its  existence 
upon  the  general  belief  that  men  are  honest  and  will 
pay  the  debts  which  they  contract.  Trade  exchanges 
should  be  more  strictly  guarded  by  holding  men  within 
their  "credit  limits."  There  is  a  general  reluctance  on 
the  part  of  business  men  to  put  checks  upon  the  freedom 
of  trade,  but  in  the  present  state  of  conunercial  develop- 
ment it  is  necessarj'^  that  men  be  held  fast  to  some  credit- 
giving  standard,  which  is  high  enough  to  enable  only 
those  who  can  reach  it  to  get  the  benefits  derived  from 
the  use  of  credit.  Under  our  present  credit  system 
men  are  prone  to  take  advantage  of  any  looseness  in 
the  granting  of  credit  and  as  a  consequence  there  are 
frequently  recurring  periods  of  "over-trading."  These 
inevitably  end  in  a  general  failure  to  liquidate,  and  this, 
combined  with  an  inelastic  system  of  banking  and  cur- 
rency, means  bank  failure,  business  failure  and  indus- 
trial depression.  jMr.  Henry  D.  MacLeod  describes  this 
state  of  affairs  as  follows: 

All  commercial  crises,  therefore,  originate  in  the  over-creation 
of  credit  and  this  is  innate  in  the  modem  system  of  credit. 
Suppose  that  at  any  time  the  commercial  world  started  with  a 
perfectly  clean  slate.  When  such  multitudes  of  persons  are 
trading  on  credit,  it  must  inevitably  happen  that  a  consider- 
able number  will  speculate  unsuccessfully,  and  create  an  excess 


NATURE  OF  C  REDIT 


JJ19 


of  credit,  which  cannot  be  redeemed  hy  fair  means.  All  excess 
of  credit  may  be  considered  as  so  much  virus  or  poison  in  the 
l)ody  commercial.  However,  by  various  tricks  and  devices 
known  to  traders,  they  can  keep  themselves  afloat  many  years 
after  they  are  utterly  insolvent,  and  thus  the  poison  continu- 
ally accumulates.  Then  perhaps  a  fever  of  speculation  takes 
place,  giving  rise  to  the  creation  of  vast  masses  of  speculative 
paper,  and  then,  the  poison  having  accumulated  to  a  sufficient 
"xtciit,  bursts  forth  in  a  tumor  or  abscess,  called  a  commercial 


crisis. 


8.  Different  degrees  of  business  confidence  repre- 
acnted  hy  different  credit  instruments. — Confidence  is 
such  an  essential  element  in  all  departments  of  social 
activity  that  it  becomes  necessary  to  specify  which  par- 
ticular confidential  relation  is  referred  .to.  We  speak 
of  a  man's  "belief"  when  we  have  reference  to  the  con- 
viction upon  which  his  religious  trust  is  founded.  If  we 
mention  a  man's  "credit"  then  we  have  reference  to  that 
trust  or  confidence  which  pertains  to  his  business  rela- 
tions. 

As  business  transactions  grew  more  involved  and 
embraced  longer  times  and  greater  distances,  it  be- 
came necessary  to  qualify  the  idea  of  "credit"  so  that 
there  might  be  a  more  correct  judgment  regarding  the 
degree  of  confidence,  or  the  opposite — the  amount  of 
risk — involved  in  these  varying  business  relations. 

The  first  difference  that  suggests  itself  is  the  differ- 
ence due  to  the  distances  which  separate  men  and  other 
obstacles  that  prevent  men  from  forming  accurate 
knowledge  of  each  other.  This  puts  restrictions  upon 
men's  confidence.  Few  men  have  national  reputations, 
Tione  are  universnlly  trusted,  and  the  great  majority  are 
not  known  and  trusted  outside  the  circle  of  a  few  per- 
sonal friends.    This  limits  the  acceptability  of  credit  in- 


iliii) 


CREDIT  AND  THE  CREDIT  .MAX 


struineiits  issued  by  individuals,  institutions,  and  even 
governments.  It  is  necessary  in  a  discussion  oi  credit 
to  put  some  limits  to  the  locality  within  which  we  wish 
to  consider  it.  The  nation  is  taken,  therefore,  when  the 
extent  of  the  acceptability  of  credit  instruments  is  con- 
sidered. Thus  we  can  speak  of  credit  of  limited  and 
credit  of  unlimited  acceptability.  The  first  of  these  is 
represented  by  the  promissory  note,  and  the  bank  check, 
while  examples  of  the  second  are  seen  in  the  greenback 
and  the  banknote.  The  last  two  are  popularly  called 
money  and  are  so  i-eadily  ajid  generally  accepted  that 
people  often  forget  that  they  represent  only  the  gov- 
ernment's promise  to  pay  money  upon  demand.' 

A  further  consideration  of  the  relation  of  credit  to 
money  would  l^iad  into  a  discussion  of  the  subject  of 
prices.  Although  this  is  a  very  important  one  to  the 
business  man,  it  cannot  be  developed  here.  A  few 
words,  however,  may  be  suggestive.  IMen  who  give 
credit  extending  over  long  periods  of  time  are  interested 
in  the  return  of  an  equivalent  value  when  the  debt  falls 
due.  The  face  value  of  the  credit  instrument  is  ex- 
pressed in  terms  of  money,  say  $1,000,  but  if  at  the  date 
of  maturity  the  value  of  money  has  changed,  that  is, 
if  the  $1,000  will  not  buy  the  same  amount  of  goods  at 
the  latter  date  that  it  could  at  the  date  at  which  the 
note  was  given,  then  the  creditor  may  be  in  a  position 

'  Scientific  vse.—  Money  is  that  thing  which  everybody  in  a  community 
desires  in  some  degree  and  is  willing  to  take  in  payment  for  goods  parted 
with  or  for  services  rendered.  This  is  money  in  the  scientific  sense.  It 
is  sometimes  distinguished  as  standard  or  redemption  money.  In  the 
I'nited  States,  according  to  this  definition,  gold  coin  alone  is  money. 

Popular  use.—  Money  is  jjopularly  used  as  a  synonym  of  cash  or  "  ready 
money,"  being  applied  indiscriminately  to  all  forms  of  currency,  such  as 
gold  coin,  bank  notes,  greenbacks,  silver  dollars,  etc.  This  Is  the  most 
inniiuo.i  use  of  the  word.  In  this  sense  money  is  made  to  include  not  only 
so-citllcd  "standard  money,"  but  also  all  kinds  of  cretlit  money.— Joseph 
Krenili  Johnsoh,  "  .Money  and  Currency,"  page  C. 


NATURE  OF  CREDIT 


231 


to  lose  money  by  the  transaction.  Thus  it  is  important 
that  the  giver  of  long-time  credits  should  have  some 
means  of  judging  the  tendency  for  money  to  increase 
or  decrease  in  value.  The  use  of  credit  as  a  medium 
of  exchange  tends  to  lessen  the  need  for  money  and 
lience  to  lessen  its  value.  The  level  of  prices  is  higher 
than  it  would  be  if  credit  were  not  used.  As  before 
explained,  a  credit  instrument  is  a  promise  to  pay  money 
and  serves  as  a  medium  of  exchange.  Since  the  prom- 
ises to  pay  money  are  cancelled  through  the  agency  of 
banks,  without  the  use  of  money,  it  is  evident  that  \he 
demand  or  need  for  money  must  tend  to  decrease  when 
the  use  of  credit  is  increasing.  In  a  country  whose 
business  is  giving  rise  to  a  certain  volume  of  exchange 
the  demand  for  money  itself  varies  in  proportion  to  the 
use  of  credit.  It  is  large  if  credit  is  little  employed, 
and  small  if  credit  is  much  employed.^ 

9.  Time  as  a  factor  in  credit. — Another  distinction 
that  it  has  become  necessary  to  make  within  the  field  of 
cred't  is  the  one  due  to  the  different  lengths  of  time  for 
which  credit  is  granted.  The  close  relation  between  the 
development  of  commerce  and  the  credit  system  has 
been  noted  already.  The  severe  commercial  competition 
forced  men  into  a  close  study  of  the  better  organization 
of  the  productive  and  the  distributive  systems  in  order 
to  economize.  This  better  organization  enabled  men  not 
o!\ly  to  increase  their  capital,  but  enabled  them  to  turn 
over  their  capital  oftener.  Man  is  compelled  to-day  to 
work  on  smaller  margins  of  profit  and  he  must,  there- 
lore,  turn  over  his  capital  oftener.  Consequently,  the 
credit  system  was  modified  to  suit  the  commercial  condi- 
tions, an^J  as  a  result  there  has  been  a  curtailment  of  time 
in  the  granting  of  credits.     The  long-time  credits,  when 

»  Joseph  French  Johnson,  "  Monej  and  Currency,"  page  24. 


222 


CREDIT  AND  THE  CREDIT  MAN 


six  and  twelve  months  were  regularly  given  to  traders 
in  the  far  AVest  and  South,  would  not  be  considered  war- 
rantable to-day.  Those  were  days  of  long  distances, 
and  of  little  communication,  except  when  the  buyers  vis- 
ited the  market  in  person.  When  these  conditions 
changed  it  was  no  longer  necessary  to  grant  such  long 
terms  of  credit.  Therefore  it  became  customary  to 
speak  of  short-time  and  long-time  credits.  Examples 
of  the  first  kind  include  a  period  of  time  running  from 
a  demand  at  sight  to  a  thirty-day  promissory  note.  The 
second  class  includes  those  long-time  instruments  M'hich 
may  run  sixty  days  or  longer. 

10.  Various  classes  of  credit— StiW  another  classi- 
fication of  credits  may  be  made.     The  basis  for  this 
classification  rests  on  the  particular  economic  activity 
in    which   credit   is   used.     In   the   field    of   produc- 
tion into  which  capital  is  led  by  the  means  of  credit  we 
have  what  is  known  as  capital  or  investment  credit.     In 
the  field  of  exchange,  where  business  men  devote  them- 
selves solely  to  the  business  of  buying  and  selling  credits, 
we  have  the  kind  of  credit  with' which  people  are  most 
familiar.     Credit  in  this  relation  is  spoken  of  as  banking 
credit.     Another  very  active  sphere  where  credit  is  used 
is  in  connection  with  the  distribution  of  the  products  of 
manufacture.     The  form  of  credit  which  permits  the 
change  of  goods  from  one  merchant  to  another  is  com- 
monly called  mercantile  or  commercial  credit.    Although 
these  divisions  constitute  the  most  thoroughly  systema- 
tized spheres  of  credit  operations,  nevertheless  there  is 
still  another  point  of  view  from  which  credit  should  be 
observed.     This   is   within  the   field   of  consumption. 
Credit  which  permits  the  individual  to  obtain  goods  for 
his   personal    enjoyment   is    designated   as    "personal 


NATURE  OF  CREDIT 


ilUS 


credit."     The  problems  which  arise  under  this  latter  sys- 
tem belong  especially  to  the  retail  trade. 

The  advantages  of  credit  in  these  various  branches  of 
economic  activity  of  production,  exchange,  distribution 
and  consumption  are  well  set  forth  by  Professor  Conrad 
of  Halle  University: 


( 1 )  Credit  furnishes  a  more  perfect  and  convenient  means  of 
p.ivment  in  large  sums  and  between  distant  places  than  the 
precious  metals,  saving  time  and  labor.  This  is  effected  by 
means  of  notes,  checks  and  bills  of  exchange.  (2)  Credit  takes 
the  place  of  corresponding  amounts  of  gold  and  silver.  This 
is  ii  saving,  as  it  enables  us  to  employ  the  precious  metals  for 
other  useful  purposes.  (S)  Capital  is  employed  more  produc- 
tively. He  who  possesses  capital,  but  is  for  any  reason  unable 
to  make  use  of  it,  transfers  it  to  another  for  a  compensation 
to  the  btnefit  of  both,  as  well  as  that  of  the  public  economy. 
It  is  given,  cateris  paribus,  to  him  who  is  ready  to  pay  the 
liif^hcst  price  for  its  use;  that  is,  in  general,  to  him  who  can  em- 
))h)y  it  most  productively.  (4)  The  laborers,  artisans,  and 
traders,  although  unprovided  with  means  of  their  own,  may  by 
tlic  use  of  credit  obtain  capital  to  assist  them  in  their  labors, 
and  that  without  sacrificing  their  independence.  This  point 
is  to  be  particularly  borne  in  mind  as  of  special  weight  in 
judging  the  credit  of  unions.  Credits  is  thus  of  importance  in 
avoiding  that  separation  of  capital  and  labor  which  excites  so 
much  bad  feeling  and  which  forebodes  danger  to  modem  civili- 
zation. (5)  Credit  gathers  together  the  small  sums,  which,  by 
moans  of  joint-stock  companies  and  otherwise,  are  economic- 
ally employed.  Capital  is  concentrated,  but  its  returns  are 
disseminated  among  the  people,  politically  a  weighty  point. 
(())  The  possibility  of  employing  every  sum,  however  minute, 
iirpfcs  people  on  to  saving.  (7)  Credit  binds  together  the 
interests  of  those  having  dealings  with  one  another.  Under 
a  highly  developed  system  of  credit  economy,  it  is  the  interest 


J.'24 


CREDIT  AND  THE  CREDIT  MAN 


of  each  to  show  himself  wortliy  of  trust ;  this  can  be  of  advan- 
tage in  the  moral  education  of  a  people.  (8)  It  enables  men 
to  save  for  their  old  age,  and  make  provision  for  their  families 
in  case  of  their  death.  Were  there  no  such  thing  as  credit,  the 
best  one  could  do  would  be  to  heap  up,  and  then  consume  after- 
ward, the  capital  gathered  together. 

To  this  excellent  summary  Professor  Ely  in  his  article 
on  "German  Cooperative  Credit  Unions"  adds  the  fol- 
lowing division : 

(9)  Capital,  when  obtained  under  favorable  circumstances, 
yields  a  larger  return  than  the  interest.  Were  it  otherwise] 
borrowing,  except  in  case  of  special  need  and  distress,  would 
cease.  The  prudent  and  skillful  laborer  who  can  command 
credit  is  thus  enabled  to  obtain,  besides  his  wages,  a  surplus  from 
the  use  of  the  capital.  Credit,  well  used,  is  therefore  economic- 
ally as  productive  as  a  favorable  climate  or  a  high  education  of 
a  people. 


CHAPTER  II 


DIVISIONS  OF  CREDIT 


11.  Varieties  of  business  credit. — It  has  been  men- 
tioned in  the  preceding  pages  that  barter,  money  and 
credit  simply  represented  three  transactions,  differing 
only  in  the  degree  of  confidence  that  was  manifested  in 
the  transaction.  The  last  stage,  or  credit  economy, 
shows  a  higher  degree  of  confidence,  since  the  very  es- 
sence of  our  commercial  system  is  found  in  the  element 
of  future  time  involved  in  our  transactions.  The  longer 
the  period  of  time  that  is  interposed  between  the  sur- 
render of  one's  property  and  the  payment  for  the  same, 
the  greater  is  the  confidence  displayed.  There  remains, 
however,  a  close  connection  between  the  present  credit 
economy  and  the  use  of  money ;  for  every  credit  instru- 
ment given  in  exchange  for  goods  must  be  liquidated 
by  means  of  money.  This  imposes  upon  the  commercial 
world  the  necessity  of  watching  a  double  set  of  condi- 
tions: (1)  The  character  of  the  collateral;  and  (2)  the 
condition  of  the  money  market.  That  is,  the  credits 
must  be  based  on  goods  or  collateral  that  are  marketable 
and  whose  future  value  in  terms  of  money  will  be  equiv- 
alent to  the  value  of  the  credit  extension  at  the  time 
when  it  was  given.  Banking  credit,  mercantile  credit, 
or  personal  credit  are  simply  transactions  which  differ 
from  each  other  because  they  hold  different  situations 
in  the  field  of  business  relations.  A  bank,  a  large  com- 
mercial house  and  a  small  retail  store  may  be  presented 
simultaneously  with  requests  for  credit,  each  applicant 

III-15  ««5 


aae 


CREDIT  AND  THE  CREDIT  MAN 


offering  the  same  kind  of  security,  but  as  there  would 
be  different  relations  established  in  each  case,  there 
would  be  different  names  used.  Thus  while  there  are 
certain  things  which  are  common  to  the  whole  field  of 
credit  operations,  there  are  certain  lines  of  credit  which 
become  the  particular  study  of  each  of  the  divisions  rep- 
resented above. 

12.  Personal  credit. — In  order  of  origin,  personal 
credit  holds  first  place.  Borrowing  arose  for  the  pur- 
pose of  satisfying  some  consumptive  desire.  But  when 
the  purpose  of  business  changed  from  making  a  living 
to  making  a  profit,  banking  and  conmiercial  credits  were 
developed.  Nevertheless,  personal  credit  still  persists, 
and  although  the  oldest  form,  it  is  not  the  one  which 
presents  the  most  systematic  organization.  This  is  eas- 
ily explained  when  we  examine  the  elements  of  which  it 
is  composed.  In  general,  it  resembles  commercial  credit; 
the  difference  lies  chiefly  in  the  fact  that  commercial 
credit  has  other  features,  in  which  personal  credit  is 
lacking. 

13.  Why  a  personal  credit  system  is  not  well  organ- 
ized.—On  account  of  the  difficulty  of  classifying  per- 
sonal credit-takers,  there  seem  to  be  no  well-established 
rules  that  are  followed  by  those  who  extend  credit  to 
their  customers.  Each  extension  of  credit  is  to  an  indi- 
vidual member  of  society.  His  relation  to  others  in  his 
capacity  as  an  individual  consumer  is  in  no  way  regu- 
lated by  public  ratings  of  his  riches,  earning  power, 
or  character.  Any  agency  that  would  attempt  to  gather 
such  information  from  among  the  various  classes  of 
laborers,  professional  people  and  others  would  find  the 
costs  far  too  high  to  make  it  pay.  Another  difiSculty 
which  confronts  the  dealer,  and  which  makes  the  estab- 
lishment of  any  uniform  policy  ahnost  impossible,  is  the 


DIVISIONS  OF  CREDIT 


227 


great  difference  in  the  economic  status  of  those  who  wish 
to  "buy  goods  on  trust."  First,  there  are  individuals 
who  can  demand  credit  on  their  merits;  secondly,  there 
are  others  who  by  virtue  of  their  very  misery  and  poverty 
have  a  claim  for  credit.  The  reason  for  lack  of  system 
in  this  branch  of  credit  is  not,  however,  solely  due  to 
the  variety  of  social  and  economic  disparities  among 
consumers.  There  is  much  to  be  charged  against  the 
(lisi)enser  of  credit.  JNIr.  James  G.  Cannon,  vice-pres- 
ident of  the  Fourth  National  Bank  of  New  York,  in  a 
paper  entitled,  Individual  Credits^  is  of  the  opinion  that 
one  of  the  great  evils  connected  with  this  kind  of  credit 
is  "too  great  liberality."  Neither  genuine  liberal- 
ity nor  philanthropy  inspires  the  extension  of  such 
credit;  it  is  rather  the  result  of  ignorance  or  inertia  on 
the  part  of  those  whose  duty  it  is  to  investigate  the 
credit-standing  of  the  applicant. 

14.  Reasons  for  not  making  proper  inquiries. — The 
neglect  of  making  proper  inquiries  may  be  due  to  the 
following  factors.  First,  there  is  often  an  inordinate 
desire  on  the  part  of  dealers  to  gain  wealth.  This  leads 
them  to  extend  credits  without  distinction.  In  order  to 
out-rival  their  competitors,  they  throw  discretion  to  the 
winds,  and  invite  custom  by  offering  liberal  credit.  The 
maxim  of  "a  small  business  with  good  collections  and 
fair  profits"  is  forgotten,  and  the  dealer  is  led  by  his 
ciii)idity  upon  the  unsafe  ground  of  a  big  credit  busi- 
ness, which  is  not  only  less  profitable  financially,  but  is 
detrimental  to  his  health  and  peace  of  mind,  insofar  as 
it  means  a  constant  struggle  to  support  the  thin  margin 
that  stands  between  him  and  commercial  failure. 

Second,  many  dealers  lack  the  "business  sense."  They 
are  wanting  in  those  instincts  which  discriminate  clearly 
between  a  proposition  based  on  a  trading  relation  and 


asH 


CRi:UIT  AM)  THE  CREDIT  MAN 


one  which  is  based  on  personal  friendship.  Such  men 
are  deterred  from  making  inijuiries  of  their  patrons 
regarding  their  immediate  or  prospective  ability  to  pay 
for  fear  of  giving  offense,  although  questions  of  this 
sort  are  perfectly  legitimate  from  a  business  point  of 
view;  but  the  dealer  allows  himself  to  be  controlled  by 
feelings  which  are  more  suited  to  a  "good  fellow" 
socially,  than  to  a  successful  business  man. 

Third,  there  exists  a  si)ecies  of  cre<lit-seekers  who  prey 
upon  the  fears  of  the  dealer,  knowing  that  by  pre- 
senting a  bold  front,  by  telling  a  plausible  story,  or  by 
convincing  manners,  they  will  be  given  credit.  Having 
once  won  a  foothc  il,  they  further  increase  their  debts  by 
appealing  to  another  fear  common  among  dealers — that 
of  losing  a  patron,  or  playing  him  into  the  hands  of  com- 
petitors. What  storekeeper,  having  convinced  hhnself 
that  he  was  wrong  in  not  refusing  credit,  has  not  been 
again  driven  to  the  same  policy  by  the  appearance  of 
some  clever  woman,  who  full  of  righteous  indignation, 
"the  family  honor  having  been  impugned,"  offers  expla- 
nations which  make  the  dealer  feel  that  the  evidence 
of  unpaid  bills  is  as  naught  besid  the  mighty  possibility 
standing  before  him.  He  will  probably  chide  himself 
and  offer  humble  apologies  for  letting  an  unfavorable 
balance  arouse  any  doubts  of  her  paying  ability. 

Fourth,  besides  these  personal  causes,  there  is  another 
factor  which,  although  it  is  perhaps  outside  of  the  con- 
trol of  the  individual,  may  not  be  beyond  the  control 
of  a  united  trade.  Many  dealers  would  make  investi- 
gations in  harmony  with  good  business  judgment  if 
there  were  such  facilities.  We  do  not  here  include  the 
"mammoth  stores"  whose  managements  can  avail  them- 
selves of  the  various  sources  of  credit  information.  The 
majority  of  dealers  do  not  have  access  to  these  facilities, 


DIVISIONS  OF  CREDIT  ««9 

however.  The  expenses  connected  with  membership  in 
a  mercantile  agency,  or  cooperative  bureau,  put  such 
means  beyond  their  reach.  Then,  too,  the  small  mer- 
chant has  not  the  necessary  time  to  give  his  attention 
to  the  investigation  of  the  credit  standing  of  his  cus- 
tomers, while  to  hire  a  man  for  this  particular  purpose 
is  also  far  beyond  his  means.  Yet,  it  is  the  opinion  of 
eminent  author*  ties,  that  it  would  be  to  the  advantage 
of  every  merchant  to  give  considerable  time  to  the  study 
of  his  credits.* 

That  the  time  is  not  far  distant  when  the  retail  trade 
will  have  much  better  facilities  for  obtaining  credit  in- 
formation is  evident  from  such  movements  as  the  "In- 
dianapolis Plan."  During  the  year  1910  four  cities  had 
adopted  this  plan  of  cooperative  retail  credit  reporting. 

The  plan  as  outlined  by  W.  E.  Bolch  before  the  an- 
nual meeting  of  credit  men  shows  the  following  signifi- 
cant features: 

A  private  telephone  exchange  was  installed.  This 
enables  the  credit  departments  of  each  firm  to  get  abso- 
hite  privacy.  The  records  of  customers  are  kept  in  a 
central  office.  When  cards  come  to  the  office  they  are 
carefully  compiled.  A  special  code  of  numbers  known 
only  to  the  central  office  is  used  to  designate  the  members 

1  One  of  the  large  department  stores  sends  the  following  form  letter  to 
pei.  >ns  whom  an  applicant  for  credit  give  as  references: 

Dear  Sir:— 

Will  you  kindly  give  us  in  confidence  such  information  as  you  may  possess 
concerning  the  financial  responsibility.  Income  and  habit  of  pay,  etc^  of  the 
person  whose  name  is  noted  on  the  reverse  side  of  this  inquiry. 

Thanking  you  in  advance,  we  are 

Yours  very  truly, 

The  following  appears  on  the  reverse  side  of  the  letter: 

Xame • 

Residence 

Business 

Address 

REPLYt 


ftSO 


CREDIT  AND  THE  CREDIT  MAN 


of  the  association.  Under  these  numbers  the  informa- 
tion  concerning  customers  was  filed.  Thus  when  the  file 
was  completed  the  bureau  had  a  record  in  concise  form 
of  the  manner  every  account  in  every  store  had  been 
taken  care  of.  In  order  to  keep  the  file  "alive"  a  record 
book  was  introduced.  In  this  is  entered  every  account 
as  soon  as  it  is  opened.  This  keeps  the  record  complete 
to  the  very  day.  Special  attention  is  given  by  members 
to  reporting  changes  of  address  of  customers.  This 
makes  the  record  valuable  as  a  reliable  directory. 

Daily  the  Commercial  Record  is  checked  to  this 
record;  every  suit  and  judgment,  every  lien  and  lease, 
chattel  mortgage — in  fact — everything  tending  to  lessen 
a  customer's  credit  responsibility  is  entered  on  his  par- 
ticular card.  If  danger  is  scented  all  members  inter- 
ested as  having  sold  or  still  selling  the  customer  are 
called  on  their  special  telephone  and  notified  of  the  facts 
against  his  record.  Likewise  is  each  case  reported  if  a 
customer's  account  shows  that  it  is  becoming  danger- 
ously slow.  Two  or  more  reports  on  one  person  sent 
to  the  Bureau  is  the  signal  for  a  general  notification  to 
all  members  of  the  Association. 

Information  of  a  more  general  nature,  such  as  a 
record  of  the  persons  to  whom  credit  had  been  denied 
either  because  of  previous  adverse  ratings  or  because  of 
no  credit  experience  is  sent  out  in  bulletin  form  twice  a 
week  to  the  members. 

The  three  elements  which  the  Association  lays  stress 
upon  when  a  customer's  credit  standing  is  being  inves- 
tigated are  paying  ability,  stability  of  character  and 
moral  responsibility.  "As  practically  75  per  cent  of  the 
retail  credit  risks,"  says  Mr.  Bolch,  "are  salaried  persons, 
we  ascertain  as  nearly  as  possible  the  income  or  salary 
of  an  applicant,  his  stability  as  shown  by  the  length  of 


DIVISIONS  OF  CREDIT 


881 


time  he  has  been  with  his  present  employer,  his  domestic 
rt'siKJnsibility  and  his  paying  habits  in  the  immediate 
IcK-ality  of  his  home.  The  tax  records  show  his  legal 
responsibiUty,  if  any.  and  these  all  go  to  show  as  far  as 
jM)ssible,  the  probable  results,  should  credit  be  extended. 
When  an  applicant  is  engaged  in  business,  a  complete 
eport  of  his  ledger  experience  in  the  local  wholesale 
trade  is  secured  through  close  affiliation  with  a  similar 
bureau  maintained  in  the  wholesale  jobbing  trade." 

Besides  keeping  in  touch  with  other  trade  bureaus  the 
retail  association  maintains  close  affiliations  with  the  city 
banks.  All  the  banks  are  members  of  the  bureau.  This 
relation  helps  both  the  retailers  and  the  banks,  since 
"kiters"  *  either  of  checks  or  commercial  credit  are  known 
to  the  Bureau  and  reported  to  the  whole  association. 
Three  fundamental  ideas  underlie  the  working  of  this 

system. 

(1)  Opinions  are  never  confused  with  facta.  The 
bureau  acts  only  as  a  clearing  house  for  ledger  figures 
which  tell  their  own  story. 

(2)  The  source  of  information  is  never  made  known. 
The  stores  are  known  by  a  cipher.  Without  divulging 
the  source  of  the  information  the  bureau  can  report  upon 
a  customer's  indebtedness  to  another  store.  The  inquir- 
ing store  gets  only  the  total  sum  owing  and  the  amount 
past  due.  The  chief  value  of  this  mformation  rests 
upon  its  being  up  to  date.  It  represents  present  in- 
debtedness of  a  credit  customer. 

(8)  Cooperation  between  the  members  is  stimulated 
by  a  feeling  of  ownership.  The  bureau  belongs  to  the 
members  and  not  to  a  voting  agency  owned  and  con- 

1  A  check  "klter"  is  a  person  given  to  overdrawing  his  account  habituaUy. 
"Kiting  accounts"  refers  to  the  practice  of  establishing  a  line  of  credit 
in  several  stores  by  a  person  In  excess  of  his  ability  to  pay. 


232 


CREDIT  AND  THE  CREDIT  MAN 


trolled  by  people  from  the  outside.  The  association 
absolutely  owns  a  live  record  of  ove^  60,000  persons, 
comprising  over  600,000  actual     ;]>  .  transactions. 

In  summing  up  his  valuable  report  the  author  says: 

While  the  direct  tangible  good  wrought  by  the  working  out 
of  this  plan  has  been  far  greater  than  we  had  dared  to  hope, 
the  intangible  salutary  effect  it  has  had  has  been  worth  far  more 
than  can  be  esti:  ited  in  dollars  and  cents.  It  has  been  the 
means  of  clearing  out  forever  parasites  who  have  literally  lived 
on  the  local  retail  merchants  in  maintaining  their  valued  (?) 
position  in  society  and  at  the  same  time,  has  given  a  correct 
and  firmer  credit  standing  to  those  to  whom  credit  is  due. 

15.  Relation  of  personal  credit  to  other  credits.-^ 
The  extension  of  personal  credits  has  a  two-fold  effect. 
It  affects  the  commercial  system  as  a  whole,  and  it  is 
also  connected  with  the  subject  of  prices.  If  the  retail 
dealer  cannot  collect  his  debts,  it  means  that  the  whole- 
saler or  jobber  or  his  banker  must  wait  for  their 
payments.  Then,  too,  there  are  the  producers  or  man- 
ufacturers or  their  bankers,  who  must  suffer  the  restric- 
tions which  are  put  upon  business  activity  by  fraud  or 
failure  to  meet  engagements  on  time.  For  this  lack  of 
system  and  the  strictness  in  regard  to  credit  extension, 
the  consumer  pays  the  penalty  in  the  increase  of  prices 
due  to  added  risks  which  the  commercial  world  must 
undergo  as  a  result.  How  great  these  risks  are,  may 
be  inferred  from  the  statement  made  before  the  meeting 
of  the  Credit  Men's  Association  in  1900.  After  giving 
the  estimated  average  losses  for  the  years  1890-1899, 
as  being  more  than  $178,800,000,  Mr.  D.  B.  Murphy 
says: 

Appalling  though  these  figures  be,  they  do  not  include  the 
untold  millions  that  are  absolutely  lost  each  year,  by  merchants 


DIVISIONS  OF  CREDIT 


233 


engaged  in  retail  trade,  in  every  line  of  industry,  in  every  town 
and  cross-roads,  from  ocean  to  ocean,  from  the  lakes  to  the 
Gulf,  comprising  every  retail  enterprise,  from  the  gigantic 
department  stores  in  our  great  cities  to  the  humble  rural  deal- 
ers. These  figures  do  not  include  the  very  considerable  loss  sus- 
tained by  those  engaged  in  the  learned  professions — notably 
by  the  physicians  of  the  country — nor  do  they  include  the 
enormous  losses  of  a  personal  and  confidential  nature. 

16.  Efect  of  "too  ready  credit"  upon  the  consumer, 
—There  is  another  penalty  which  the  consumer  must 
pay  although  not  so  directly,  through  the  use  of  too 
"ready  credit,"  which  is  nevertheless  more  harmful  be- 
cause of  the  insidious  nature  of  the  cause.  Among 
those  who  seek  credit  are  a  large  class  of  laborers  and 
others  who  do  not  give  due  consideration  to  the  demands 
of  the  future,  but  who  are  controlled  entirely  by  their 
present  desires.  We  i^ee  whole  communities  in  numer- 
ous sections  of  i  country,  who  lack  definite  plans  for 
provision  for  ola  age  or  for  periods  of  idleness  or  sick- 
ness. The  "installment  plan"  is  an  example  of  a  method 
by  which  credit  may  be  made  attractive  to  this  class  of 
people.  In  a  recent  report  upon  the  conditions  in  "The 
Cotton  Mills  of  South  Carolina,"  the  author  says  in 
illustration  of  this  point: 

It  is  an  exception  to  go  Into  a  home  and  not  find  photographs 
or  highly-colored  lithographs.  In  a  great  many  communities  I 
was  told  that  the  bane  of  the  operatives  as  a  class  was  the  habit 
of  buying  things  on  the  installment  plan — ^from  an  organ  to 
a  last  year's  almanac — and  when  I  asked  him  why  anyone 
would  buy  a  "last  year's  almanac,*'  he  replied  that  it  would  be 
bought  on  credit  for  the  jokes  that  were  in  it.  As  a  matter  of 
fact,  the  first  thing  that  the  operatives  have  to  contend  with 
after  they  get  into  the  mill  village  is  the  agent  who  wants  to 


834 


CREDIT  AND  THE  CREDIT  MAN 


sell  furniture,  pictures,  a  sewing  machine,  books,  and  a  Bible, 
and  now  a  phonograph  on  the  installment  plan. 

Any  means  by  which  credit  might  be  curtailed  among 
such  classes  would  tend  to  raise  them  morally  and  eco- 
nomically in  the  scale  of  social  betterment.  A  method 
often  followed  by  individual  dealers  is  to  restrict  credit 
allowances  to  one  week  and  refuse  more  until  settlement 
is  made.  This  is  often  most  effective  among  those  who 
"run"  book  accounts  with  the  grocer  and  butcher. 
"Run"  is  a  good  word  to  use  in  this  connection,  for  the 
account  book  is  generally  traveling  back  and  forth  be- 
tween the  home  and  the  store  incessantly.  As  a  conse- 
quence, the  weekly  salary  is  outrun  before  the  week's 
necessities  have  been  provided  for. 

Perhaps  no  human  weakness  is  more  universally 
played  upon  than  the  readiness  of  the  individual  to  bar- 
gain away  his  future  independence  through  the  instru- 
ment of  credit.  It  is  the  instinct  of  every  trader  to 
insure  his  profit  wherever  he  can.  By  getting  men  to 
buy  on  credit,  he  not  only  encourages  them  to  purchase 
more  extravagantly  than  on  a  strictly  cash  basis,  but  he 
holds  a  claim  upon  their  future  earning  power,  and  to 
this  extent  controls  their  independence.  The  "truck 
system"  is  the  best  example  of  the  abuse  of  this  class 
of  credit.  The  relationship  of  employer  to  employe 
often  puts  the  latter  in  the  power  of  the  former  through 
the  "enjoyment  of  credit"  at  the  "company  stores." 

17.  Other  abuses  of  credit— There  is,  however,  a 
more  general  abuse  of  personal  credit  in  the  appeals 
to  the  public  made  by  mercantile  houses.  "Your  credit 
is  good  at  the  New  England"  is  a  type  of  a  very  com- 
mon mode  of  advertising  which  is  meant  to  trap  people 
into  assuming  heavy  obligations,  which,  in  view  of  their 


DIVISIONS  OF  CREDIT 


235 


means,  they  have  no  right  to  make.  The  risk  to  capital 
and  profits  when  long  credits  are  given  is  protected  by 
chattel  mortgage  and  high  prices  for  the  goods.  But 
these  disadvantages  look  small  to  the  purchaser  when 
"the  day  of  judgment"  lies  so  far  in  the  future. 

Another  favorite  device  practiced  even  by  large  and 
representative  firms,  is  only  a  variation  of  this  method. 
Personal  letters  are  sent  to  prospective  customers  whose 
patronage  is  solicited.  The  advantages  of  a  running 
account  are  offered  to  them.  The  evil  of  this  method 
lies  not  so  much  in  the  solicitation  as  in  the  kind  of  infor- 
mation which  forms  the  basis  for  offering  the  opening  of 
credit  accounts.  Lists  of  names  are  gathered  from  a 
sort  of  society's  "Who's  Who."  The  makers  of  these 
directories  are  not  concerned  with  the  financial  respon- 
sibility of  the  people  whose  names  they  procure.  Fash- 
onable  residence  quarters  are-  the  chief  consideration. 
iVhere  luxury  exists  there  should  be  at  least  a  suspicion 
of  extravagance,  and  extravagance  means  that  the  credit 
margin  is  likely  to  be  narrow.  The  merchant  should  be 
more  interested  in  the  surplus  which  the  customer  can 
devote  lo  the  purchase  of  goods,  than  to  the  size  of  the 
bills  for  the  rent  of  house  and  automobiles. 

18.  Mercanlile  credit. — The  division  of  credit  into 
personal,  mercantile,  banking,  and  capital  credits  is  done 
on  the  basis  of  convenience  rather  than  for  the  purpose 
of  forming  a  basis  for  scientific  analysis.  While  per- 
sonal credit  has  to  do  with  the  transactions  connected 
with  the  buying  of  the  individual  consumer,  it  is  desir- 
able to  form  another  classification  in  order  to  include 
those  larger  transactions  which  involve  a  greater  degree 
of  responsibility.  As  a  consequence,  we  should  expect 
to  find  a  more  fully  organized  system  for  dealing  with 
credit,  and  a  sounder  basis  upon  which  it  is  granted. 


236 


CREDIT  AND  THE  CREDIT  MAN 


Mercantile  credit  is  confined  to  those  trade  inter- 
clmnges  embraced  in  the  distribution  of  goods.  So  nu- 
merous and  varied  are  these  credit  operations  in  this 
field  of  trade  interchange,  that  it  has  become  necessary 
to  provide  special  institutions  and  agencies  to  aid  in 
giving  celerity  and  security  to  these  credit  operations. 
So  there  are  banks  and  brokerage  concerns  that  help  in 
the  transfers,  and  insurance  agencies  which  aid  in  afford- 
ing security  to  credit  transactions. 

The  system  of  mercantile  credits  as  it  exists  to-day 
is  the  result  of  a  steady  growth.  The  rapid  extensioi 
of  commerce  put  limitations  to  the  old  credit  facilities. 
The  whole  system  of  distribution  underwent  a  transfor- 
mation. As  the  country  developed  toward  the  west  and 
south,  it  became  necessary  to  meet  the  newer  condition 
of  widely  separated  markets.  The  essential  character- 
istics of  the  credit  situation  were  the  ever-growing  risks 
and  the  involved  adjustments  necessary  to  bring  present 
and  prospective  resources  to  meet  present  and  prospect- 
ive needs  among  conmiunities  whether  local,  national, 
or,  if  we  go  beyond  the  nation,  international  markets. 

The  distribution  of  our  products,  regarded  as  a  com- 
mercial system,  involves  so  many  risks  to  capital  and 
labor  that  this  service  has  become  a  distinctively  specu- 
lative business.  These  speculative  risks  have  reacted 
upon  the  industrial  system  in  such  a  way  as  to  develop 
a  new  system  under  which  credit  may  be  extended.  The 
credit  system  is,  therefore,  complementary  to  the  com- 
mercial system.  The  new  communities  in  the  west  and 
south  needed  capital  to  help  them  in  developing  their 
natural  resources.  It  was  credit  that  helped  them  over 
the  experimental  stage  of  their  endeavors.  It  is  not 
to  be  wondered  at  that  the  spirit  of  speculation  often 
became  rampant.    Yet  as  communities  became  more 


DIVISIONS  OF  CREDIT 


237 


accustomed  to  settled  conditions,  they  began  to  appre- 
ciate the  necessity  for  greater  commercial  conservatism 
and  the  importance  of  handling  more  carefully  the 
finely  balanced  mechanism  of  the  credit  system. 

19.  Factors  that  have  changed  the  credit  system.— 
The  factors  that  have  been  uppermost  in  the  modifica- 
tions of  credit  systems  are  the  railroads,  the  telegraph, 
and  other  means  of  communication.     These  have  helped 
to  cut  down  the  risks  due  to  bad  roads,  inadequate  in- 
formation as  to  investment  and  commercial  conditions, 
and  the  necessity  of  keeping  capital  tied  up  for  long 
periods  of  time.     Under  the  old  conditions,  capital  was 
tied  up  because  it  was  necessary  for  the  merchant  to 
carry  such  large  amounts  of  stock  due  to  the  difficulty 
of  calculating  the  probable  sales  of  a  season.     As  an  il- 
lustration of  this  as  it  exists  in  international  trade,  we 
need  only  cite  the  case  of  the  Indian  trade.     In  the  days 
when  a  voyage  around  the  Cape  of  Good  Hope  took  a 
part  of  a  year,  and  the  tune  of  arrival  varied  by  months, 
India  merchants  had  to  keep  large  stocks  on  hand  to 
meet  the  varying  demand.    At  present,  however,  when 
ships  make  the  trip  by  way  of  Suez  Canal  in  a  month, 
goods  are  ordered  as  they  are  needed,  and  the  immense 
warehouses  of  India  are  practically  useless  for  the  pur- 
pose for  which  they  were  designed.     It  was  necessary, 
too,  for  the  merchant  to  make  periodically  long  trips  to 
the  market  in  order  to  purchase  his  supplies.    The  better 
means  of  communication  have  reversed  the  situation  be- 
cause it  is  more  economical  for  the  selling  concern  to 
send  a  salesman  to  many  localities  than  for  the  country 
merchants  to  travel  in  person  to  the  trade  centers.     Sell- 
ing by  sample  has  superseded  selling  by  inspection.     It 
is  the  wholesaler  who  must  now  assume  the  risks  of  over- 
stocking rather  than  the  local  merchant. 


238 


CREDIT  AND  THE  CREDIT  MAN 


The  character  of  the  credit  systems  was  modified  in 
several  important  respects.     The  liberal  "time  limit" 
under  the  old  commercial  conditions  compelled  the  mer- 
chant  who  accorded  credit  to  require  the  promissory  note 
at  the  time  of  sale  so  that  he  himself  might  not  be  lackinff 
m  capital  funds  while  his  goods  were  being  disposed  of 
under  a  long  term  credit  contract.    Quick  and  easy 
communication  has  occasioned  the  substitution  of  short 
time  payments  for  the  former  "long  time"  commercial 
paper.     Then  besides  the  services  of  the  railway,  the 
mail,  the  telegraph,  and  telephone,  is  the  fact  that  bank- 
ing accommodations  have  been  extended  to  nearly  every 
village  and  hamlet  in  the  nation.     These  combined  fae- 
tors  have  had  the  secondary  effect  of  changing  the 
method  and  extent  of  note  settlements.     The  long  time 
credits  running  from  four  to  six  months  had  to  be  paid 
for  by  the  merchant  in  higher  prices  and  higher  rates 
of  interest,  but  as  the  banks  were  ready  to  advance  him 
hberal  accommodations,  he  soon  saw  the  advantage  of 
borrowing  money  from  the  bank  and  paying  for  his 
goods  at  the  most  favorable  discount  rates.     In  the 
place,  therefore,  of  the  long  time  paper,  two  new  fea- 
tures  ^gan  to  be  used,  "dating"  and  "book  accounts." 
20.  The  custom  of  dating.— The  custom  of  dating 
seenis  to  have  grown  out  of  a  plan  to  grant  extra  credit 
by  the  wholesaler  and  jobber  in  order  to  induce  the  mer- 
chant to  make  purchases  before  the  season  opened. 
Competition,  too,  encouraged  the  practice  of  making 
time  allowances  in  order  to  cover  the  period  during  which 
goo<k  were  in  transit  and  while  they  were  being  prepared 
for  display.    By  this  method,  the  purchaser  persuades 
the  seUer  of  the  goods  to  date  the  biU  a  certain  length  of 
tune  ahead  of  the  actual  shipment,  say,  thirty  or  sixty 
days.     Then  if  the  purchaser  is  accustomed  to  another 


DIVISIONS  OP  CREDIT 


2S9 


definite  length  of  time  in  which  to  pay,  the  time  does 
not  begin  until  the  expiration  of  the  thirty  or  sixty  days. 
For  instance,  a  cotton  textile  merchant  has  a  bill  of  goods 
sold  July  I,  1908,  and  charged  for  on  the  same  date 
with  a  dating  of  sixty  days ;  terms  2  per  cent,  ten  days ; 
and  net  thirty  days.  This  will  not  be  due  until  October 
1,  which  means  that  the  debtor  can  pay  the  bill  at  any 
time  within  three  months  from  July  1,  because  the 
dating  gives  him  until  September  1,  and  the  term  of 
thirty  days  extends  the  time  limit  to  October  1.  Not 
until  October  1  can  the  creditor  demand  payment.  The 
merchant  might  take  advantage  of  his  credit  at  his  bank 
and  borrow  money  with  which  to  liquidate  the  note  at 
the  end  of  ten  days.  He  would  then  be  gaining  the  ad- 
vantage of  the  2  per  cent  discount  as  well  as  the  interest 
upon  the  note  for  sixty  days. 

Although  the  custom  of  dating  bills  seems  to  be  firmly 
established,  yet  the  wholesale  world  is  beginning  to  favor 
its  discontinuance.  This  is  seen  in  one  direction  by  the 
steady  growth  of  cash  wholesalers  by  whom  the  credit 
market  is  being  undersold.  If  the  latter  practice  should 
prove  the  more  economical,  it  is  only  a  question  of  time 
when  the  retailers  must  withdraw  their  support  of  the 
dating  system.  Some  claim  that  it  is  already  outgrown 
and  is  on  the  whole  detrimental  to  the  trade  since  it  en- 
courages men  to  use  snap  judgments  in  anticipating 
market  conditions.  As  a  consequence,  dealers  over- 
stock, and  large  and  frequent  losses  ensue. 

21.  The  book  account. — More  recent  than  the  cus- 
tom of  "dating"  is  the  substitution  of  the  book  account 
for  the  familiar  promissory  note  and  the  domestic  bill  of 
exchange.  For  many  years  these  formed  the  greater 
part  of  the  business  paper  handled  by  the  banks.  By 
the  extension  and  better  organization  of  the  banking  sys- 


240 


CREDIT  AND  THE  CREDIT  MAN 


tem,  the  dealers  in  the  country  were  enabled  to  save  the 
extra  costs  connected  with  the  long  time  paper.  Mer- 
chants could  now  buy  credit  of  their  local  banker  and 
pay  "cash"  to  the  distant  jobber  or  wholesaler.^ 

The  long  time  credit  instruments  having  disappeared 
generally,  the  chief  record  of  the  transaction  was  that 
left  upon  the  books  of  the  creditor.  The  bills  of  ex- 
change had  served  not  only  as  evidences  of  debts,  but 
had  also  entered  largely  into  commerce  as  mediums  of 
exchange.  They  were  among  the  best  kinds  of  business 
paper.  A  merchant  who  had  sold  his  goods  and  held  a 
note  against  them  could  easily  pass  it  to  another  business 
man  for  more  goods,  or  he  could  readily  discount  it  at 
a  bank  for  the  actual  cash.  The  disappearance  of  the 
bill  of  exchange,  however,  did  not  do  away  with  the 
necessity  on  the  part  of  the  wholesaler  or  jobber  of  often 
seeking  to  raise  money  on  outstanding  accounts.  Not 
having  the  notes  to  discount,  the  only  avenue  open  was 
to  borrow  directly  upon  the  book  accounts.  This,  of 
course,  could  be  done  only  when  the  owner  of  the  book 
accounts  was  well  known  to  the  banker,  for  while  the 
promissory  note  gave  double  evidence  of  the  transaction 
— that  of  the  maker  and  that  of  the  endorser— the  book 
account  had  to  stand  on  the  word  of  the  owner  alone. 

The  experiment,  however,  having  been  made  and 
found  to  be  reasonably  safe  and  profitable  to  both  par- 
ties, a  regular  system  has  grown  up  which  deals  with 
this  particular  kind  of  credit.  At  first  it  was  handled 
solely  by  the  banks  along  with  their  loan  departments, 
but  the  business  increased  to  such  an  extent  that  some 

1  A  cash  sale  is  a  sale  which  is  to  l»e  immediately  delivered  and  paid  for 
at  the  same  time  (stock  exchange  rule),  tiut  among  merchants  payment 
is  to  be  miKi^c  within  a  certain  number  of  days,  usually  ten.—  Montgomeiy 
Rollins,  "  Money  and  Investment." 


DIVISIONS  OF  CREDIT 


241 


hanks  organized  a  separate  department  for  dealing  in 
l)ook  accounts. 

Most  banks  found,  however,  that  work  of  this  kind 
was  very  highly  specialized  and  therefore  too  ex- 
j)ensive — taking  into  consideration  the  conservatism 
necessary  in  banking — for  them  to  handle.  Accord- 
ingly there  grew  up  outside  the  bank  certain  brokerage 
institutions  which  made  it  their  specialty  to  handle  busi- 
ness paper.  They  became  very  expert  in  judging  of 
business  credits  and  as  they  gained  rapidly  in  capital 
strength  themselves,  these  brokerage  concerns  became 
valuable  adjuncts  to  the  banking  system.  Often  where 
a  bank  is  prohibited  from  assuming  the  risk  of  discount- 
ing the  book  account  directly,  it  is  able  to  loan  money 
on  the  broker's  security  and  experience,  as  well  as  on 
the  knowledge  that  a  ready  market  exists  in  which  they 
can  quickly  realize  on  these  securities  if  necessary. 

22.  Two  methods  of  assigning  accounts. — The  terms 
under  which  this  business  is  done  vary.  The  accounts 
of  a  merchant  may  be  assigned  to  a  bank  or  a  conunis- 
sion  house  in  one  of  two  ways.  The  assignee  may  al- 
low the  assignor  of  the  acounts  to  withdraw  a  certain 
percentage  of  the  value  of  the  book  credit,  amounting 
to  from  70  to  00  per  cent.  In  addition  he  may  ask  a 
bonus  and  a  heavy  rate  of  interest.^ 

The  terms  which  govern  another  class  of  assignments 
are  not  so  onerous,  the  difference  depending  in  a  great 
measure  upon  the  degree  of  confidence  which  the  banker 
has  in  the  assignor  of  the  accounts.  A  common  prac- 
tice permits  the  assignor  to  act  virtually  in  the  capacity 
of  an  agent  of  the  assignee.     The  banker  accepts  the  ac- 

1  In  the  state  of  New  York  the  usury  laws  compel  such  agreements  to 
('c  carried  on  tub  ro$a.  The  methods  by  which  some  commission  houses 
*nd  banks  evade  the  law  are  very  questionable. 

Ill— 16 


842 


CREDIT  AND  THE  CREDIT  MAN 


counts  and  then  allows  the  original  owner  to  collect  them 
and  to  use  the  money.  As  soon  as  the  account  is  col- 
lected new  credits  of  equal  value  are  turned  over  to  the 
banker.  By  this  means  is  maintained  the  margin  be- 
tween the  total  book  value  of  the  accounts  and  the  agreed 
percentage  allowed  upon  them  by  the  banker.  This 
method  is  considered  favorable  to  the  assignor  becausv 
he  may  in  this  way  keep  the  fact  of  assignment  from 
his  customers.  It  is  generally  thought  that  a  man's 
business  prospects  are  not  sound  if  he  is  willing  to  as- 
sume the  heavy  charges  connected  with  this  method  of 
raising  funds.  But  conditions  may  compel  the  banker 
to  exercise  his  rights  under  the  assignment,  in  whidi 
case  the  customer's  accounts  that  have  been  conveyed  to 
him  would  be  collected  by  the  bank. 

In  case  the  bank  or  commission  concern  is  willing  to 
take  all  the  risk  connected  with  a  given  line  of  accounts, 
the  terms  are  proportionately  exacting.  Here  the  book 
credits  are  bought  outright  but  only  at  a  heavy  discount 
including  a  "bonus"  and  a  high  interest  charge.  To  be 
convinced  that  the  handling  of  this  kind  of  credit  paper 
is  profitable  one  needs  only  to  observe  the  increasing 
numbers  of  commission  firms  which  are  discounting  and 
loaning  upon  these  book  credits.  Many  of  these  con- 
cerns have  the  capital  strength  of  large  banks  and  their 
work  partakes  much  of  the  nature  of  banking. 


CHAPTER  III 

DIVISIONS  OF  CREDIT  {Continued), 

28.  Capital  or  investment  credit. — When  goods  have 
l>een  turned  out  of  the  factories,  mills  and  workshops, 
completely  finished  and  ready  for  use  they  may  be  di- 
vided into  two  general  classes — ^those  which  are  to  be 
consumed  directly,  their  usefulness  ending  with  one  act 
of  consumption,  and  those  goods  which  are  to  be  used 
in  the  production  of  more  merchandise.  The  former 
are  desired  because  they  satisfy  some  personal  want. 
Food  and  clothing  are  the  commonest  examples  of  these. 
The  economist  calls  them  "consumption  goods."  In  the 
])receding  pages  we  have  taken  this  use  or  function  as 
the  basis  for  classifying  the  credit  transactions  connected 
with  the  exchange  of  these  goods  in  their  transference 
from  the  dealer  to  the  consumer,  and  we  have  designated 
this  transaction  as  "personal"  or  "consumptive"  credit. 
The  latter  class  is  desired  because  these  goods  are  ex- 
pected to  help  in  the  production  of  more  goods.  People 
value  them  according  to  the  profit  they  are  expected  to 
return.     They  are  therefore  called  "capital  goods." 

Income  from  capital  goods  may  arise  from  the  use  of 
them  by  the  owner;  for  example,  the  blacksmith  may 
own  his  own  forge,  anvil,  and  other  tools  and  may  per- 
form all  the  work  with  his  own  hands.  He  assumes  the 
personal  risk  in  the  business  and  he  expects  to  receive 
his  return  in  the  shape  of  profits.  On  the  other  hand, 
the  owner  of  the  capital  goods  may  take  no  active  part 
in  the  business.     His  interest  in  the  enterprise  is  limited 

24S 


344 


CREDIT  AND  THE  CREDIT  MAN 


to  the  income  in  the  form  of  dividends  and  interest  pay> 
ments.  His  share  of  the  gain  does  not  depend  on  the 
fortunes  of  the  handler.  Railroad  stock,  municipal  and 
government  bonds  may  be  cited  as  good  illustrations  of 
this  class  of  investments.  Men  who  invest  in  these 
forms  of  capital  goods  are  generally  controlled  by  the 
desire  to  have  a  regular  and  assured  income.  Certainty 
and  regularity,  therefore,  must  be  the  guiding  elements 
in  considering  the  exchanges  which  take  place  in  trans- 
ferring the  claims  of  ownership  comprehended  in  this 
field  of  capital  investment.  So  we  have  another  basis 
for  classifying  the  credit  transactions  of  persons  who 
deal  in  this  grade  of  capital  ■  investments.  The  title 
given  to  this  branch  of  credit  is  in  accordance  with  the 
character  of  the  investments  which  it  aids  in  carrying 
out  and  is  therefore  called  "capital"  or  "investment" 
credit.  The  credit  instruments  which  arise  as  a  result 
of  these  are  designated  investment  securities,  and  the  es- 
sential nature  of  the  credit  is  suggested  by  the  term 
"long-time  investments." 

24.  Elements  of  safety  in  capital  credit. — A  full 
discussion  of  the  nature,  forms  and  methods  of  invest- 
ment would  take  us  into  the  broad  field  of  fimncial 
operations,  but  it  is  pertinent  here  to  mention  the  ele- 
ments of  safety  to  be  studied  in  capital  credit: 

( 1 )  If  the  business  is  safe  and  profitable,  the  security 
is  safe. 

(2)  The  permanency  and  activity  of  the  market  is 
essential  in  determining  the  character  of  the  demand. 

(3)  Stability  and  progress  in  business  conditions  in- 
dicate the  general  trend  which  all  investments  are  taking. 

(4)  Solidarity  and  fixedness  of  policy  in  a  business 
lend  the  same  attributes  to  its  securities. 

(5)  A  steady  and  reasonable  rate  of  interest  over  a 


DIVISIONS  OF  CREDIT 


245 


series  of  years  insures  the  fact  that  a  business  is  on  an 
"investment  basis." 

(6)  The  character  of  the  competition  discloses  the 
value  of  its  monopoly  position  as  a  holder  of  franchises. 
ffood  will,  patents  and  so  on. 

(7)  It  is  desirable  that  the  character  of  the  manage- 
ment be  known  in  order  to  arrive  at  a  knowledge  of 
policy,  trustworthiness  and  so  forth. 

23.  Principal  forms  of  capital  credit— The  usual 
forms  of  capital  credit  are  the  following: 

1.  Government  bonds. 

2.  State  bonds. 

8.  Municipal  bonds. 

4.  Real  estate  bonds  and  mortgages  covering  real 

estate. 

5.  Railroad  bonds  and  stock. 

6.  Municipal  street  car  line  bonds  and  stock. 

7.  Telegraph  securities. 

8.  Telephone  securities. 

9.  Gas  and  electric  lighting. 

10.  Waterworks  bonds. 

11.  Bank  and  trust  company  shares. 

12.  "Industrials." 

The  rapid  growth  of  the  last  form  of  investment— 
"industrials"— calls  for  at  least  a  passing  remark. 
Within  a  comparatively  short  period  this  form  of  cap- 
ital credit  has  assumed  a  leading  place.  The  magni- 
tude of  the  industrial  capitalization  may  be  appreciated 
from  a  recent  tabulation  showing  that  the  amount  of 
"industrial  securities"  was  equal  to  48  per  cent  of  the 
capital  listed  on  the  New  York  Stock  Exchange.  This 
comparison  showed  that  the  industrials  amounted  to 
$4,002,000,000  as  against  the  railroads  of  $5,800,- 
000,000. 


246 


CREDIT  AND  THE  CREDIT  MAN 


26.  Principal  sources  of  capital  funds. — The  sources 
from  which  funds  are  drawn  to  be  employed  in  capital 
investments  show  the  desire  of  the  investor  to  have  se- 
curity for  his  capital.  The  commonest  source  is  the 
funds  of  the  retired  business  man.  Another  well-known 
avenue  by  which  surplus  funds  reach  the  investment 
field  of  credit  securities  is  found  in  the  savinf",  bank  de- 
posits, the  accumulated  profits  of  commercial  banks,  and 
the  funds  of  life  and  fire  insurance  companies.  There 
are  also  certain  charitable  or  educational  institutions 
which  buy  up  well-known  bonds  as  safe  investments. 
Of  the  same  nature  are  the  funds  of  estates  in  the  hands 
of  executors.  In  the  case  of  trustees  the  risks  and 
profits  of  business  are  exchanged  for  the  safer  but 
smaller  income  from  some  form  of  capital  credits.* 

27.  Banking  credit  and  its  relation  to  commercial 
credit. — The  close  relation  of  banking  credit  to  conmier- 
cial  credit  is  indicated  by  the  frequent  association  of  the 
two  before  the  subject  of  banking  credit  could  be  treated 
specifically.  Not  all  banks  are  connected  with  conmier- 
cial  credits.  Those  which  do  deal  in  them  are  called 
commercial  banks.  Their  organization  is  based  on  the 
principle  of  accepting  deposits  subject  to  check  so  as  to 
facilitate  an  exchange  of  commodities,  and  in  this  way 
to  be  of  benefit  to  merchants  and  business  men  in  gen- 
eral. It  is  commercial  credit  that  originates  and  gives 
life  to  the  vast  amount  of  credit  instruments  which  form 
the  bulk  of  the  banking  business.  That  the  bank's  re- 
lations to  the  community  can  be  defined  in  terms  of 
credit  is  illustrated  by  the  fact  that  when  a  bank  receives 
a  deposit,  the  community  expresses  its  degree  of  confi- 
dence in  the  bank,  and  when  the  community  takes  a  loan 
from  the  bank,  the  latter  shows  its  faith  in  the  com- 

>  See  "  Credit  and  its  Uses,"  by  WllUam  A.  Prendergast,  page  43. 


DIVISIONS  OF  CREDIT 


X47 


munity.     This  mutual  expression  of  confidence  extends 
the  activity  of  the  bank  in  one  direction,  while  it  sets 
limits  to  it  in  another.     The  confidence  of  the  depositor 
rests  largely  in  '  •••  belief  that  the  "bank  is  safe,"  by 
which  is  meant       t  the  creditor  can  obtain  his  money 
upon  demand.       j  long  as  this  faith  in  the  bank's  abil- 
ity to  pay  on  demiOid  is  unquestioned,  which  is  gener- 
ally true  in  normal  business  times,  the  depositors  will  not 
all  call  for  their  money  at  the  same  time.     Knowing  this 
and  through  long  experience  having  found  out  what 
proportion  of  the  dep»sits  must  be  kept  for  meeting  the 
immediate  demands,  the  banker  is  able  to  use  part  of  the 
deposits  for  granting  credit  to  business  men  who  have 
no  money  to  deposit  but  who  have  property  in  the  form 
of  notes,  bills  of  exchange,  warehouse  receipts  and  so 
on,  which  they  are  willing  to  deposit  with  the  banks  or 
sell  to  them  at  a  discount  in  return  for  the  right  of  using 
the  bank's  credit.     In  this  way  the  banking  credit  is  ex- 
changed for  commercial  credit  and  in  two  ways  is  credit 
extended.     First,  the  bank  by  its  position  as  an  accumu- 
lator of  deposits  is  enabled  to  create  four  times  the 
amount  of  credit  transactions  that  could  have  been 
created  in  the  hands  of  individual  depositors.     Second, 
by  the  "swapping  of  well-known  credit  for  less  known 
credit,"  as  the  discount  of  conmiercial  paper  is  so  aptly 
defined,  a  credit  instrument  of  greater  acceptability  has 
been  added  to  the  conmiunity  by  means  of  which  ex- 
changes are  the  more  readily  increased. 

28.  Limitation  of  bank  credit. — On  the  other  hand, 
the  scope  of  a  bank's  credit  operations  is  limited  and  by 
means  of  the  very  force  which  gives  it  its  great  credit 
strength.  Every  deposit  is  also  a  liability  which  the 
bank  must  meet  at  once  if  demanded.  The  limit  of  a 
banker's  power  to  discount  commercial  paper  is  set  by 


848 


CREDIT  AND  THE  CREDIT  MAN 


the  probable  call  for  money  by  his  depositors  for  with- 
drawal from  the  bank.  The  amount  kept  on  hand  to 
meet  such  demands  is  called  the  cash  reserve.  "This  re- 
serve is  the  hank,  in  the  original  meaning  of  the  term— 
the  heap,  or  pile,  from  which  daily  payments  are  made 
and  upon  which  all  the  credit  operations  rest."  * 

29.  The  credit  latitude  of  a  bank  and  a  mercantile 
home. — In  order,  therefore,  to  meet  any  sudden  demand 
upon  the  reserve,  it  is  necessary  that  the  bank's  in- 
vestment in  outside  credits  be  of  such  a  nature  as  to  be 
realized  upon  with  certainty  and  despatch.  It  must  be 
satisfied,  therefore,  with  a  comparatively  low  rate  of 
income  from  its  investments. 

Guided  by  the  leading  idea  of  maintaining  its  own 
credit  in  the  discharge  of  the  obligations  to  its  depositors, 
the  field  of  credit  operations  open  to  a  bank  is  dependent 
upon  the  degree  of  convertibility  among  credit  instru- 
ments. A  certain  kind  of  credit  security,  therefore,  may 
be  excluded  altogether.  Under  our  national  banking 
law,  commercial  banks  cannot  lend  money  on  the  se- 
curity of  real  estate.  On  the  other  hand,  the  securities 
which  a  bank  accepts  may  be  so  readily  marketable  that 
it  is  not  necessary  to  connect  them  with  its  credit  depart- 
ment at  all.  These  "call  loans"  are  handled  in  a  loan 
department  where  the  momentarily  fluctuating  market 
conditions  govern  the  collateral  value  rather  than  the 
person  or  persons  making  the  note. 

J  The  cash  reserve  may  consist  of  any  kind  of  currency  which  is  com- 
monly accepted,  but  preferal)ly  of  legal-tender  money,  not  the  notes  of  other 
banlcs.  Its  amount  must  be  proportionate  to  tiiat  of  the  deposits.  Tlie 
right  proportion  can  l>e  learned  only  by  experience  and  only  approximately. 
It  varies  in  different  countries,  and  at  different  places  in  the  same  country; 
and  the  local  banker,  as  the  person  most  tlioroughly  conversant  with  local 
conditions,  has,  as  one  of  his  most  important  duties,  the  ascertainment  and 
preservation  of  that  reserve  which  most  nearly  meets  the  needs  of  hit 
conununity.— Horace  White,  "  Money  and  Banking." 


DIVISIONS  OF  CREDIT 


249 


It  is  desirable  that  a  bank  should  have  a  portion  of  its  inter- 
est-bearing assets  so  invested  that  it  can  be  quickly  turned  into 
cash  to  meet  a  sudden  emergency.  This  is  especially  needful 
in  the  case  of  a  bank  which  holds  large  sums  deposited  by  other 
hanks,  since  a  financial  disturbance  occurring  in  a  distant  quar- 
ter may  bring  sudden  demands  for  cash  from  the  depositing 
banks.  Stock  exchange  securities  are  held  by  banks,  partly 
because  they  can  be  sold  at  short  notice  to  meet  such  emer- 
gencies, partly  because  opportunities  occur  to  bankers  for  ac- 
quiring them  at  low  prices,  and  sometimes  because  they  have 
been  compelled  to  take  the  securities  for  debts,  which  would 
otherwise  have  been  lost.^ 

Still  another  class  of  credit  instruments  are  excluded 
from  the  credit  department  on  account  of  their  nature. 
Such  are  checks  and  other  cash  items  as  drafts  on  private 
banks  not  members  of  the  clearing  house,  and  small  ad- 
vances payable  on  demand. 

30.  "Business  paper"  and  "loans  and  discounts" — 
Therefore,  by  a  process  of  elimination  we  arrive  at  the 
particular  branch  of  credit  known  as  banking  credit. 
The  change  of  name  which  certain  credits  undergo  be- 
cause of  the  different  point  of  view  involved,  often 
causes  confusion  and  leads  to  complete  loss  of  connec- 
tion between  the  conmiercial  and  the  banking  world, 
lu  the  conunercial  world  many  credit  instruments,  run- 
ning from  two  to  four  months,  are  executed  by  men  en- 
^raged  in  active  business.  In  this  relation  they  are 
spoken  of  collectively  as  "business  paper"  and  consist 
of  promissory  notes,  drafts  and  bills  of  exchange. 
From  the  point  of  view  of  the  bank  these  promissory 
notes  and  so  forth  become  "loans  and  discounts."  Then, 
too,  the  bank  finds  it  convenient  and  necessary  to  mdke 
other  classifications  of  this  "paper."     Two  of  these  are 

>  Horace  White,  **M(»>ey  and  bank  rg,"  p.  91. 


250 


CREDIT  AND  THE  CREDIT  MAN 


fundamentally  very  important  to  the  credit  man  from 
the  point  of  view  of  security.  Promissory  notes  are  di- 
vided into  single-name  paper  and  double-name  paper. 
A  promissory  note  which  is  executed  by  one  person  and 
offered  for  discount  without  other  security  is  called 
single-name  paper.  A  similar  note  drawn  by  X  to  the 
order  of  Z,  endorsed  by  the  latter  and  presented  for  dis- 
count, gives  the  note  a  double  security,  both  men  being 
liable.  This  is  called  double-name  paper.  A  second 
criterion  of  security  is  sought  in  the  method  of  its  origin. 
Either  single-name  or  double-name  paper  may  have  its 
origin  in  a  sale  of  goods  on  time  and  be  presented  to  the 
bank  for  discount,  but  if  it  does  not  owe  its  existence  to 
an  actual  business  transaction  it  is  not  considered  as 
somA  security  to  lend  upon.  This  kind  of  a  note  is 
called  accommodation  paper.  In  the  case  of  a  ficti- 
tious or  intended  transaction,  the  security  is  consid- 
ered to  be  simply  "personal."  The  following  estima- 
tion of  Mr.  Henry  Thornton  illustrates  the  difference 
between  real  and  fictitious  paper: 

Real  notes  (it  is  sometimes  said)  represent  actual  property. 
There  are  actual  goods  in  existence  which  are  the  counterpart 
to  every  real  note.  Notes  which  are  not  drawn  in  consequence 
of  a  sale  of  goods  are  a  species  of  false  wealth  by  which  a  na- 
tion is  deceived.  These  supply  only  an  imaginary  capital,  the 
others  indicate  one  that  is  real. 

In  answer  to  this  statement  it  may  be  observed,  first,  that 
the  notes  given  in  consequence  of  a  real  sale  of  goods  cannot 
be  considered  as  on  that  account  certainly  representing  any 
actual  property.  Suppose  that  A  sells  £100  worth  of  goods 
to  B  at  six  months'  credit,  and  takes  a  bill  at  six  months  for 
it ;  and  that  B,  within  a  month  after,  sells  the  same  goods,  at  a 
like  credit  to  C,  taking  a  like  bill;  and  again,  that  C,  after 
another  month,  sells  them  to  D,  taking  a  like  bill,  and  so  on. 


DIVISIONS  OF  CREDIT 


251 


There  may  then  at  the  end  of  six  month*  be  six  bilU,  of  £100 
each,  existing  at  the  same  time;  and  every  one  of  these  may 
possibly  have  been  discounted.  Of  all  these  bills,  then  only  one 
represents  any  actual  property. 

In  order  to  justify  the  supposition  that  a  real  bill  (as  it  i» 
called)    represents  actual  property,  there   ought  *<>  be  some 
power  in  the  billholder  to  prevent  the  property  which  the  bill 
represents  from  being  turned  to  other  purposes  than  that  of 
paying  the  bill  in  question.     No  such  power  exists ;  neither  the 
man  who  holds  the  real  bill  nor  the  man  who  discounts  it  has 
any  property  in  the  specific  goods  for  which  it  was  given;  he 
as  much  trusts  to  the  general  ability  to  pay  of  the  giver  of 
the  bill,  as  the  holder  of  any  fictitious  bill  does.     The  fictitious 
bill  may,  in  many  cases,  be  a  bill  given  by  a  person  having  a 
large  and  known  capital,  a  part  of  which  the  fictitious  bill  may 
be  said  in  that  case  to  represent.     The  supposition  that  real 
bills  represent  property,  and  that  fictitious  bills  do  not,  seems, 
therefore,  to  be  one  by  which  more  than  justice  is  done  to  one 
of  these  species  of  bills,  and  something  less  than  justice  to  the 
other. 

Mr.  Horace  White  seems  to  agree  with  Win  when  he 
says  in  his  "Money  and  Banking" :  "Both  are  loans  on 
personal  security,  since  in  neither  case  has  the  hanker  a 
lien  on  any  particular  goods." 


CHAPTER  IV 


FUNCTIONS  OF  A  CREDIT  DEPARTMENT 

81.  The  forming  of  credit  estimations. — Some 
knowledge  of  the  nature  of  credit  opens  the  way  to  a 
clear  understanding  of  a  credit  department.  From  the 
point  of  view  of  trade  interchanges,  two  elements 
need  to  be  emphasized  regarding  the  nature  of  credit 

(1)  Every  credit  transaction  involves  the  future  and 

(2)  it  involves  a  contract.  Hence,  credit  making  is  an 
estimate  of  the  ability  and  intention  of  business  men 
to  carry  out  their  business  contracts,  and  of  their  ability 
to  judge  future  commercial  conditions.  The  functions 
of  a  credit  department,  then,  may  be  said  to  be  the  form- 
ing of  credit  estimations.  If  every  customer  paid  cash 
on  the  receipt  of  his  goods,  there  would  be  little  need  of 
a  credit  man;  but  since  customers  buy  on  credit,  it  is 
necessarj'  that  the  man  who  sells  on  credit  shall  study 
the  conditions  on  which  the  customer's  future  profits  de- 
pend. Every  seller  of  credit  thus  becomes  a  risk  taker 
in  the  enterprises  of  every  credit  taker  and  to  this  extent 
is  a  partner  in  the  business. 

The  basis  upon  which  the  credit  man  forms  his  opin- 
ion is  the  information  which  is  collected.  It  therefore 
becomes  necessary  to  know  what  information  is  most  es- 
sential to  the  particular  business  under  consideratioh. 
Many  factors  must  be  taken  into  account  before  a  de- 
cision can  be  made.  Consequently  no  general  state- 
ment that  will  fit  all  lines  of  business  activity  can  be  ap- 
pealed to.    Before  seeking  information,  the  credit  man 

^Z6% 


FUNCTIONS  OP  CREDIT  DEPARTMENT   «58 

should  consider  the  location  of  his  own  business  house, 
the  kind  of  wares  it  handles,  the  general  character  of  ite 
trade,   and   the    form  of   credit   it   usually   extends. 
Having  once  mastered  the  relations  growing  out  of  the 
activities  which  these  factors  produce  in  meeting  the 
commercial  world  at  various  points,  much  information 
that  is  irrelevant  to  his  work  may  be  eliminated.     In 
general,  after  all  due  allowances  have  been  made,  two 
factors  may  be  said  to  form  the  basis  of  the  essential  in- 
formation needed  to  judge  of  the  advisability  of  ex- 
tending credit.     These  are  character  and  tangible  as- 
sets.   By  the  latter  is  meant  "property  which  can  be 
taken  under  an  execution  and  whether  personally  ac- 
quired or  inherited,  qualified  by  income  and  net  wealth." 
32.  Credit  exteimon  in  the  wholesale  trade.— We 
have  already  pointed  out  important  distinctions  that 
arise  in  applying  credit  to  the  various  fields  of  indus- 
trial and  commercial  activities.     It  will  now  be  neces- 
sary to  point  out  certain  differences  which  arise  within 
the  more  restricted  field  of  commercial  activity.     The 
most  fully  developed  branch  of  this  field  from  the  point 
of  view  of  commercial  credit  is  that  which  embraces  the 
relations  of  the  wholesalers  or  jobbers  to  their  customers. 
A  very  important  matter  in  connection  with  wholesale 
credit  is  the  volume  of  a  customer's  sales  and  the  amount 
of  his  expenses.     The  amount  of  sales  throws  light  upon 
the  frequency  of  the  turnover  of  his  capital,  which  in 
turn  indicates  the  ability  of  the  merchant  as  well  as  the 
condition  of  the  market. 

One  of  the  largest  wholesale  houses  in  Chicago  fol- 
lows a  plan  which  allows  a  customer  with  a  business 
capital  of  $10,000  a  certain  hne  of  credit  to  start  with. 
If  he  proves  himself  prompt  in  meeting  his  obligations 
and  confines  his  purchases  largely  to  this  one  company. 


iirti 


CREDIT  AND  THE  CREDIT  MAN 


the  amount  of  his  credit  is  often  increased,  but  the  prin- 
cipal basis  for  increasing  a  line  of  credit  lies  in  the 
amount  of  business  done.  If  the  customer  does  a  busi- 
ness of  three  times  his  capital  he  is  entitled  to  more 
credit  than  one  who  is  turning  over  his  capital  only  once 
or  twice  annually.  In  this  particular  line  of  trade, 
statistics  show  that  a  merchant  must  turn  his  stock  at 
least  twice  a  year  or  he  is  not  making  a  profit. 

But  after  all,  if  the  credit  man  keeps  his  eye  solely 
upon  the  business-getting  qualities  of  a  customer,  he  has 
observed  only  one  side  of  his  ability.  Much  depends 
upon  the  cutting  of  expenses,  for  this  shows  the  man's 
ability  as  a  manager.  The  relation  between  the  expenses 
of  a  house  and  the  amount  of  sales  forms  one  of  the  best 
foundations  for  granting  it  credit 

88,  Granting  credit  by  a  manufacturing  concern. — 
Another  branch  of  business  which  comes  within  the 
scope  of  trade  interchange  is  the  manufacturing  con- 
cern whose  product  must  be  put  upon  the  market,  but 
which  is  generally  done  through  the  jobber.  Yet  there 
is  a  growing  tendency  on  the  part  of  the  manufacturer 
to  deal  directly  with  the  retailer  and  even  with  the  large 
consumer.  The  basis  upon  which  credit  opinions  are 
formed  here  is  much  the  same  as  that  in  the  wholesale 
trade;  but  the  point  of  view  of  the  manufacturer  is 
different  from  that  of  the  jobber.  The  latter  works 
locally;  the  former  has  a  broader  horizon.  The  mami- 
facturer  is  often  in  a  better  position  to  chocne  his  cus- 
tomers from  among  the  retail  trade  and  can  leave  the 
poorer  risks  to  be  dealt  with  through  the  middleman. 
But  on  the  other  hand,  the  manufacturer  must  take  other 
risks  not  imposed  upon  the  jobber.  This  gives  different 
directions  to  the  general  policies  of  the  two  firms.  To 
demonstrate  this,  let  us  suppose,  that  a  manufacturer  hw 


FUNCTIONS  OF  CREDIT  DEPARTMENT   «55 

decided  to  put  a  new  line  of  goods  on  the  market.  To 
do  this  he  advertises  broadly.  He  has  no  limitation  as 
to  the  extent  of  that  market,  but  when  it  comes  to  the 
filling  of  the  incoming  orders  he  must  meet  his  custom- 
ers in  the  spirit  in  which  he  created  the  demand  for  his 
product.  Failure  to  supply  any  large  commercial  cen- 
ter, or  failure  to  assume  a  liberal  attitude  in  granting 
credit  might  not  only  lose  him  trade,  but  might  injure 
his  reputation  as  well.  He  must  often  place  his  goods 
with  little  hope  of  getting  other  returns  than  a  good  ad- 
vertisement. The  credit  department  of  a  jobbing  house 
has  few  worries  of  this  nature,  for  its  policy  is  usually 
directed  toward  selling  staple  goods  with  an  assured 
market.  Yet  the  manufacturing  concern  must  ever 
keep  in  mind  that  it  is  also  a  producer  as  well  as  a  dis- 
tributer. CJoods  left  on  hand  at  the  end  of  the  season 
mean  a  loss.  Promptness,  therefore,  on  the  part  of  the 
credit  department  is  a  vital  factor.  Too  great  caution 
in  forming  a  credit  judgment  may  result  in  overstock- 
ing, or  the  delay  may  leave  "a  loophole  through  which  a 
competitor  creeps  into  a  customer's  favor." 

34.  The  giving  of  credit  by  a  retail  house. — ^DiflFer- 
ing  from  both  the  wholesale  and  the  manufacturing  con- 
cern in  its  relation  to  the  demand  for  credit,  there  is  the 
retail  house.  The  retailer  seldom  looks  up  the  past 
history  of  a  cusUnner.  He  bases  his  opinion  on  the 
character  of  the  man  and  certain  specific  facts  pertain- 
ing to  his  income,  his  bank  account,  his  place  of  resi- 
dence and  if  poMflilc,  the  state  of  his  past  or  present 
standing  with  otter  dealers  with  wh<Hn  he  has  run  ac- 
counts. The  method  of  applying  for  credit  in  the  re- 
tail trade  differs  in  some  respects  from  tiiat  of  other 
lines  of  bMness.  As  the  applicant  comes  in  person, 
and  often  in  the  person  <rf  a  woman,  judgments  must 


me 


CREDIT  AND  THE  CREDIT  MAN 


be  made  quickly  and  often  without  a  private  interview  re- 
garding the  credit  strength  of  the  applicant.  The  nec- 
essary facts  for  the  formation  of  a  judgment  mart 
often  come  indirectly  from  a  general  conversation.  In- 
ferences rather  than  settled  opinions  must  be  formed  un- 
til the  applicant's  statement  can  be  verified  from 
outside  sources.  In  case  the  applicant  is  a  business  man, 
the  services  of  mercantile  agencies  can  be  used.  Even 
in  case  he  is  not  a  merchant,  it  is  possible  that  the  agency 
can  give  information  regarding  a  man's  reliability.  But 
at  best,  the  retail  man  must  form  his  opinion  of  the  hon- 
esty and  resources  of  his  customer  from  a  more  incom- 
plete set  of  facts  than  those  upon  which  the  wholesaler 
relies.  Still  some  compensation  exists  in  the  retail 
trade.  There  is  a  much  broader  field  here  for  the  ex- 
ercise of  the  credit  man's  ingenuity  in  seeking  a  safe 
basis  on  which  to  open  an  account.  More  risks  can  be 
safely  taken  as  the  time  limit  is  more  completely  under 
his  control  as  well  as  the  extension  of  credit.  For  ex- 
ample, every  account  can  have  a  limit  put  upon  the 
amount  of  credit  extended  by  monthly  periods.  Some 
firms  change  the  limit  of  the  amount  several  times  dur- 
ing the  month,  in  accordance  with  the  condition  of  the 
account  and  the  character  of  the  purchases.  These 
statements,  however,  only  show  that  "eternal  vigilance" 
is  the  price  of  success  in  the  credit  department  of  a  re- 
tail store. 

85.  InstaUment  house  credits. — ^As  manufacturing 
credit  is  only  a  phase  of  wholesale  credit,  so  do  we  have 
different  phases  of  retail  credit.  The  installment 
method  of  the  retail  trade  is  differentiated  from  ordi- 
nary trade  through  the  methods  of  its  sales.  The  in- 
stallment plan  provides  for  (1)  a  part  payment  in  "cash 
down"  and  (2)  a  mortgage  of  some  kind  for  the  re- 


FUNCTIONS  OP  CREDIT  DEPARTMENT   f.17 

mainder  of  the  invoice.  When  the  method  of  selling 
on  insUUments  was  first  instituted,  the  customer  looked 
upon  the  installment  house  as  granting  him  a  favor,  but 
competition  in  this  method  of  trading  has  removed  any 
advantage  which  this  fact  may  have  given  to  this  branch 
of  the  retail  trade.  An  advantage  of  the  plan,  however, 
is  the  fact  that  the  credit  man  knows  better  what  class 
of  customers  he  has  to  count  upon.  Men  of  limited  in- 
come are  the  people  with  whom  the  installment  house 
largely  deals.  They  seldom  have  any  real  basis  for 
credit.  On  the  other  hand,  there  is  the  disadvantage 
in  the  risks  the  house  takes  in  befaig  compeUed  to 
^ant  credit  on  the  basis  of  the  credit  man's  intuitions. 
He  must  gain  his  information  on  the  spot  and  decide 
then  and  there.  In  an  indirect  manner,  he  must  find 
out  from  his  customer  the  reason  for  his  buying  on  this 
plan  and  the  position  or  trade  or  bank  account  from 
which  the  resources  must  come  to  pay  the  installments. 
A  quick  analysis  of  this  information  in  order  to  circum- 
vent the  fraudulent  buyer  or  to  guard  against  the  honest 
man  who  may  be  overreaching  las  resources,  is  very  es- 
sential. 

Having  decided  upon  the  diaracter  of  the  information 
which  any  particular  business  needs  in  forming  a  suit- 
able basis  for  granting  credit,  each  firm  must  settle 
upon  the  best  means  for  gathering  the  desired  informa- 
tion. 

Ill— 17 


MIdtOCOPY   RESOIUTION   TEST   CHART 

(ANSI  and  ISO  TEST  CHART  No.  2) 


1^ 

! 

1^ 

\Si 

1 

2.2 

]3A 

i 

IS 

4.0 

1 

2.0 

1 

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^     /1PPLIED  IfVHGE 


1       '   ^ast   Main   Street 

■'        fter,    .New   York         U609        USA 

V "  '  '     82  -  0300  -  Phone 

(716)  288-  5989  -  Foi 


CHAPTER  V 


SOURCES  OF  CREDIT  INFORMATION 


I;  'T 

hi; 


36.  Three  essentials  in  credit  giving. — As  education 
has  its  three  R's,  so  the  business  of  credit  giving  has  its 
three  C's — "character,"  "capacity,"  and  "capital,"  and 
the  greatest  of  these  is  character.  If  the  credit  man  has 
decided  that  the  character  of  the  appUcant  is  sound,  the 
investigation  of  the  other  two  features  will  be  materi- 
ally lightened,  for  the  qualities  that  make  for  character 
must  of  necessity  be  reflected  in  all  statements  which  are 
presented  as  evidence  of  ability  and  sufficient  capital 
strength. 

87.  Methods  of  investigation. — In  searching  for  in- 
formation, the  credit  man  has  two  ways  of  approach. 
These  may  be  termed  the  direct  and  the  indirect  methods. 
By  the  direct  method  the  credit  man  may  interview  the 
applicant  personally  and  decide  to  what  line  of  credit 
he  is  entitled.  He  may  even  ask  for  a  direct  statement 
from  the  applicant  himself.  In  some  ways  this  is  an 
ideal  method.  It  presupposes  that  the  credit  man  is  of 
a  type  similar  to  the  entrepreneur  himself.  He  must 
be  able  to  judge  of  a  risk;  and  the  cumulative  risks  con- 
nected with  a  credit  department  are  only  secondary  to 
the  risks  incident  to  the  original  business  venture.  If 
the  credit  man  can  be  on  the  spot  where  the  customer  is 
to  venture  upon  the  credit  of  his  firm,  he  can  judge  of 
the  commercial  conditions  at  first  hand;  he  comes  into 
personal  contact  with  the  customer  on  his  "native  heath." 
In  this  way — to  use  the  language  of  the  stage — ^he  gets 

a58 


SOURCES  OF  CREDIT  INFORMATION 


259 


the  setting  along  with  the  principal  character.  Then  if 
he  is  permitted,  too,  to  inspect  the  internal  sources  of  his 
information,  such  as  the  books  of  accounts,  there  ought 
to  be  little  e  reuse  on  the  part  of  the  investigator  for  ac- 
cepting a    i/ad  risk." 

If  the  credit  man  selects  the  other  direct  means  of  get- 
ting information,  the  applicant  is  requested  to  present  a 
statement.  Although  the  statement  is  not  generally 
taiien  at  its  face  value,  it  is  often  the  starting  point  in 
establishing  a  basis  for  judging  credit,  and.if  this  knowl- 
edge is  regarded  in  the  light  of  its  true  importance  as  a 
means  to  an  end,  this  information  coming  as  it  does  di- 
rectly from  those  asking  for  a  line  of  credit,  is  a  valu- 
able aid. 

38.  Testing  the  reliability  of  a  statement. — In  con- 
sidering the  reliability  of  a  statement  two  important 
factors  must  be  kept  in  mind:  (1)  "Chronic  and  in- 
tentional misrepresentation,"  and  (2)  ineffective 
methods  and  loose  systems  in  business,  which  make  a  re- 
liable statement  impossible.  These  two  factors  are  so 
common  that  the  conmiercial  public  looks  with  skepti- 
cism upon  statements  in  general.  Many  good  firms  re- 
fuse to  submit  them  because  of  the  feeling  that  the 
credit  man  regards  them  as  mis-statements  rather  than 
statements.  This  method  of  acquiring  information  is 
used  with  greater  frequency  and  success  in  the  bank- 
ing world  than  in  commercial  circles.  The  nature  of 
banking  necessitates  frequent  statements  and  accord- 
ingly more  attention  is  given  to  method. 

The  following  forms  are  among  those  in  common  use. 
The  first  two  forms  are  sent  by  a  bank  to  the  customer 
for  a  statement  of  his  affairs.  The  next  three  forms  are 
used  bv  commercial  houses. 


260  SOURCES  OF  CREDIT  INFORMATION 

Fonn  I. 

Property  .i.tement  ..nt  by  •  Ut,\  i«  b^Med  out  by  an  Individual  or  partn.r.hi, 

MESSRS.   KNAUTH.    NACHOD,  *  SI'itY'"''^'*''    "   ^^"'^*»'   ^^ 
For  the  parpose  of  procuring  and  eitabliahinK  credit  from  time  to  tin.  -uu  .v 
above   fianlcers.    for   claim,   and   demand.  %gain.t   the   und°?.ilrnei   thr't*"  j"" 

that  in  case  of  failure  or  insolvency  on  the  part  of  the  nnder«i«ied   nr  i!1J 
event  of  it   appearing  at  any   time   that   any*^  of  the   following  repwaentatl™! 

f.ih™'fS'';„H/ "" /"\°^'''*  occurrence  of  auch  change  a,*  afoteUid  or  „ 
failure  to  notify  of  such  change  aa  above  agreed,  all  or  anv  of  th«  »i.i»^  -I 
demand,  against  the  undersigned  held  by  .aid  Banker.  SLlI  at  th.  ^«°' 
thereof,  immediately  become  due  and  payable  """"e"'  «"«»  «»  the  option 
Further,  that  the  exerci.e  of  or  omission  to  exercise  such  option  on  the  nart  of  th. 
^^To  iSer'cZ  tr^a'^e'-""  ""'  '"'"  "  •"'"'*  «"''  <"-"'  °'  «b4ul« 


ASSETS. 


Cash  on  hand 

Cash  in Bank 

Bills  Receivable,   good,   due   from 
Customer. 


Bills  Receivable,  due  from  Part- 
ners  

Accounts  Receivable,  good,  due 
from  Customer. 

Account.  Receivable,  due  from 
Partner.    

Merchandise    (at    actual    pre.ent 

ea.h    value) 

Real  E.tate  belonging  to  Firm. 
Machinery  and  Fixtures 


o  S 
-§ 

B  a, 

«i 

I.  " 

o 


Total. 


LIABILITIES. 


Bills  Payable  for  Merchandise. 
Bills  Payable  to  Own  Banks.. 
Bills  Payable  for  Papers  Sold. 

Open  Account. 

Deposits  of  Money  with  us . . . 
Mortgages  or  Liens  on  Real 

Estate    

All  Other  Wotes '. 


-1 

«  ■ 
«  o 
a  a 
■o  a 
So 

.S- 

5| 


Total    Liabilities. 
NET    WORTH. . . 


Total. 


Contingent  Liability. 


J  Accommodation    Endorsement 

I  Endorsed  Bills  Receivable  OutsUnding. 


Name,    in    full 
Partner. 


of    all    General  J 

Names    in   full   of   Special   PartO 
ner.   with   amnunt.   contrib-  I 

nted     by     each,     and     until  f         

when,  J 

Date  of  organization  and  expiration  of  Partnership..*...'"* 
State  la.t  date  of  takinj;  trial  balance  and  if  same  pnired 
Memorandum     


Please   sign   here. 
By    .... 


V-23 


D«te    signed i^..., 


CREDIT  AND  THE  CREDIT  MAN 


261 


form  II- 

Property  •tatement  tent  by  bank  to  be  ftlled  out  by  •  corporation. 
MESSRS     KNAUTH,    NACHOD    &    KUHNE,    BANKERS,    15    WILLIAM    ST., 

NEW  YORK  CITY 

^"  '^,%rme?i  rca'"aW:».'^a;a'^^'t'  Iru^JS^ll^.Wt*"! 
Biened  fSffi^he  folowin,  a.  being  a  true  and  correct  atat.ment  of  Wa  or 
^"^^  .tatement  of  M.  -  t..|^r^ -^^^^^^^^^^^    cSiVocc„ri-UaV«a; 

right  to  exerciae  the  same. 


Casli  in Bank 

Cash  on  hand 

Bills  Receivable,   Good.    

Accounts  Receivable,  Good 

Bills  or  Accounts  Receivable,  due 

from    oificera 

Merchandise,  finished   (How  Val 

ued)    

Merchandise,      unfinished      (How 

Valued)     

Raw  Material    (How  Valued) . . 

Real  Estate 

Machinery  and  Fixtures 


11 

iC  0 

'I 


Total. 


Bills  Payable  for  Merchandise. . . 

Bills  Payable  to  Own  Banks 

Bills  Payable  for  Papers  Sold. . . 

Open  Accounts 

Bonded  Debt  (When  due ) 

Interest  on  Bonded  Debt 

Mortgages  or  Liens  on  Real  Es- 
tate     

Chattel  Mortgages 

Deposits  of  Money  with  us 

All  Other  Notes 

-1 


•  o 


1 


n    [ 

ToUl    Liabilities 

Oapltkl    

Snrplns,   including  undivided 

profits    ' 


Total. 


Contingent  Liability. 


J  Accommodation   Endorsement 

[.Endorsed  Bills  Receivable  Outstanding. 


Specify  any  of  above  assets  or  liabilities  pledged  as,  or  secured  by,  collateral. 
and  state  collateral. 


262 


SOURCES  OF  CREDIT  INFORMATION 


CAPITAL. 

AuthoriMd Snbieribsd , Paid    in 

Held  by  Company  •■  Treaiury  Stock 

How  paid  in:  Cash  | Other  property  9 

Description  of  otiier  property  and  liow  ralued 

What  portion  of  real  estate,  if  any,  has  been  acquired  through  bad  debts 

In  whose  name  is  title  to  real  estate  held 

Incorporated  in  what  State  and  under  what  General  Law  or  Special  Act 

Date   of  charter Commercial   business 

Are  Stockholders  liable  beyond  amount  of  stock  subscribed 

If  so,  to  what  extent 

Amount  of  annual  business Annus!  expenses Annual  dividends 

Whea  wai  last  dividend  declared Rate 

Insurance  carried  on  merchandise . . ; Real  Estate 

Is  Mortgage  above  state  a  first  lien  on  all  the  assets 

Regular  times  of  taking  inventory 

Give  basis  of  statement,  whether  actual  inventory,  by  whom    j   

taken  and,  date,  or  if  estimate,  by  whom  made  and  date   1 

What  maeunt,  if  any,  of  acc'ts  and  bills  rec.  not  charged  off,  is  past  due,  extendtd 

or  renewed 

Amount  charged  oft  for  bad  debts  last  year 

Amount  recovered  during   same  period 

Amount  charged  ott  account  of  plant  preceding  year 

State  last  date  of  taking  trial  balance  and  if  same  proved 

Regular  times  of  balancing  booka 

Number  of  bank  accounts,  and  where  kept 


OFFICERS. 


NAME  IN  FULL 

President     

Vice-President    

Secretary    

Treasurer    


ADDRESS 


DIRECTORS. 


NAME  IN  FULL 


ADDRESS 


Hease   Sign  Company's  Name   here 

By    

Date    signed 180 ... . 


CREDIT  AND  THE  CREDIT  MAN 


S63 


PROPERTY  STATEMENT  BLANK 


EECOMMENDED   AND   INDOBSED    BY    THE 
NATIONAL  ASSOCIATION  OF  CKEDIT  MEN 
TEE  RECIPROCAL  VALVE  OF  A  BIONED  ^^^^^^^f  j    ,. 
Good  credit  In  the  market,  of  *« -fg '"J^JT'o?  e"l«gS  «piSt 

is  most  desirable  is.  *at  credit  ^  in  «^5^*^™P°„d  maintain  it  A 
assets,  and  in  harmonr  with  <:onf|«o°!  !l"fte6f«  wowrw.  plus  hit  ersdit. 
merckanf,  capital  i,  ths  ~'»,1  **' "f  J  "tniUd.  and^ii".  l"  •  "t^" 
''"  •^r»al.«tf  Se'^wS  a£  «  A^  •  ^^cct  'right  to  com- 
5rin%oCliro'f^?*torS.c^^^^  reposed  in  him. 

•^  Credit  is  given  a  merchant  J«"'f*  °V*"  j~°ot  a  reSra  on  one's 

to.  better  kK«Wge  of  htabu^P~J^y-  ,1,^  „„^ 

subiriTa  statement  of  his  financial  condition. 

NOTE-  Th.  .bOT.  ..timat.  of  th.  ;•'«?*  •eXSS°ol*ScoV.*.'' o'f'The  WlS 
eeiver  is  the  MDbodlinent  of  the  thonghti  «*  'JSJ  of  Ae  Netional  A.eoci.tlon  ol 
c?edU  men  ofThe  United  SUte.  who  jre^'-Sto  ttirview.  in  order  th.t  ther. 
S.V^e'^t'he  r.",Ut\ea'ra'*«uar'U  whol.Mler. 
Standard  Form  A. 


264 


SOURCES  OF  CREDIT  INFORMATION 


To  BIOH,  MAMN  *  CO.,  V«w  Tort 

For  the  purpose  of  obtaining  credit  for  goods  to  be  sold  me  or  us  by  you. 
or  for  any  extension  granted  me  or  us  on  my  or  our  account  with  you/the 
following  is  given  you  us  a  true  statement  of  my  or  our  assets  and  ilabili- 
ties  and  gtrneral  financial  condition.  I  or  we  agree  to  and  will  notify  you 
immediately  in  writing  of  any  materially  unfavorable  change  In  my  or 
our  financial  condition,  and  in  the  absence  of  such  notice,  or  of  a  new  and 
full  written  statement,  this  may  be  considered  as  a  continuing  statement 
and  substantially  correct. 


Firm    name Date. 


.190... 


'"wn    county    

State 

•• 

... 

•• 

•• 

•  • 

ACTIVE  BUSINESS  ASSETS. 

Dollars 

Cts. 

Value  of  merchandise  on  hand  at  cost..    . 

Notes  and  accounts,  cash  value 

Cash   in    hand 

Cash  In  bank 

Fixtures,  machinery,  horses  and  wairons 

Total  Active  Business  Assets 

^ 

BUSINESS  LIABILITIES. 

Dollars 

Cts.| 

Owe   for  mdse.,  open  acct.   of 

which  $ is  past  due 

Owe  on  notes  for  mdse 

Owe  bank 

Owe  others  for  bor'd  money . . . 
Owe  taxes  and  rent 

Mtges.   on   fixtures,   machinery, 
horses  and  wagons 

Total   Business  Liabilities 

II          .11 

Net  Worth  in  Business 

1     1     1     1    1    1    1 

OUTSIDE  ASSETS. 

Total  real  estate,  assessed  valuation,  $ 

Total  encumbrances $ 

Equity 

Personal  property 

Other  assets 

Grand  Total  net  worth  in  and  out  of  Business 

~ 

MM 

1 

Please  state  location  and  description  of  each  parcel  of  real  estate,  and 
cash  valuation  of,  and  encumbrances  on  each,  and  in  whose  name  each 
parcel   is  held 


Form  A. 


CREDIT  AND  THE  CREDIT  MAN 


205 


Wliat  portion  of  real  estate  described  is  homestead. 
Have  you  any  other  debts  than  herein  mentioned?.. 


Full   given   nnd   surname  of  each 
partner 


Age? 


Married? 


Possible    liability    of 
each  member  of  Arm  as 
indorser,  bondsman,  etc. 


What  Iclnd  of  business  do  you  conduct? 

Insurance  on  stock On  fixtures,  machinery,  horses  and  wagonn 

On   real   estate 

Amount  of  sales  last  year Amount  of  expenses  last  yea. 

What  proportion  ot  your  sales  is  on  credit? 

Date  of  last  inventory Have  you  any  judgments, 

judpnent  notes,  chattel  mortgages,  or  other  liens  against  you,  lecorded  or 
unrecorded?    If  so,  describe 


If  you  have  pledged  or  transferred  outstanding  accounts  or  property  re- 
maining under  your  control,  state  amount  thereof  and  amount  received,  or 

to  be  received,  on  account  of  such  pledge  or  transfer 

Wliat  books  of  account  do  you  keep? 


Buy  principally  from  following  firms: 


Name 


Address 


What  line  of 
business? 


The  above  statement,  both  printed  and  written,  has  been  carefully  read 
by  the  undersigned,  and  is  a  fuU  and  correct  statement  of  my  or  our 

financial  condition  as  of 190 

Firm   signature ' 

By  whom  signed a  member  of  the  firm. 

All  questions  must  be  answered.  Insert  ciphers  in  absence  of  any  amount. 
When  the  words  "Yes,"  "No"  or  « None '♦^ will  correcUy  answer  the  ques- 
tions, write  them  in  their  proper  places.  ^^^ 


«G6 

FonnlV. 


S0URCK8  OF  CREDIT  INFORMATION 
PROPERTY  STATEMENT  BLANK 


"Lan*  mmU  tn  not  klways  ntrfiry  to  the  crMtlon  of  eradit:  what  la  moal  iImIhIiIi  h.  «>-« 
ercdit  be  In  relative  proportloo  to  the  actual  a«et«.  The  elver  of  credit  la  a  roDtrtbutor  ol  easHal 
and  beeamaa,  la  a  aertain  Minae.  a  partner  of  the  debtor  and.  aaauch,  baa  a  pirfeot  rlibt  to  aoaSit* 
Kformatlon  of  tba  debtore  condition  at  aU  timea." ^^  "" 

To  RICH,  MANN  ft  CO.,  New  Yorki  Date |»| 

For  tbe  purpoae  of  obtalnln*  credit  for  goods  to  be  lold  me  or  us  by  you,  or  for  any  aatanalon  irausd 
me  or  us  on  my  or  our  account  with  you.  tbe  fullowlni  Is  given  you  as  a  true  statement  of  my  or  our 
assets  and  liabilities  and  general  Itnanclal  condition.  I  or  we  agree  to  and  will  notify  you  Immedlaldy 
la  writing  of  any  materially  unfavorable  change  In  my  or  our  Hnanelol  condition,  and  In  tba  absracs 
of  such  notio-.  or  nf  a  new  and  full  written  statement,  this  may  be  considered  as  a  continuing  state- 
ment and  sub-itantlally  currevt. 


BUSINESS   ASSETS 

3 

J 

BUSINESS  LIABILITIES 

i 

1 ..]! 

i 

Oasli    ralaa    of   Iferehandiia    on 
hand 

Owe  for  Mereliandtsa,  not  duo .  . . 
Owa  for  Merchandise,  past  due .  . 

Owa  Notea  for  llarehandisa 

Owa  Banka 

Stora  Famitura  and  Fixtures .... 

Cftah  in  bftnk ...     

Owa  RelatiTsa  and  Frienda 

Owe  Taxes 

Aceonatt  food  and  collrctiblc.  . . 
Notea  cooa  and  collectible 

Ow»  Rent 

Stora.  W,^^^            p,„,.. 

Total  Busineaa  Liabilitiea. . 

Net  Wortlj  ia  Business 

Total    

Oth^r  p^rional  property 

■" 

Tot&l    fiuiineAfl    Aiiets 

If  anr  of  above  liabilities  are  aecurad. 

statu  particulars  iu  proper  placa  below. 

OUTSIDE  ASSETS 


Total  Real  Estate  owned 

Lett  exempt  portions 

Total  Real  Estate  not  exempt. 
Knevmbranee  oa  Real  Estate  not 

exempt 

Ket   Equit/   In   Real   Estate   not 

exempt 

Other  Property  not  exempt .... 

Total  Ontiide  Property 

Debtt  not  rawnerated  kbove. . 

Ket  Ontside  Astttt 

Ket  Worth  in  Busineii 

Total  Net  Worth  in  and  out  of 

Bntinesa 


Fun  Given  and  Sur- 
name of  £ach  Partner 


LUbUtrM 
Endoraevov 


Nature  of  Business 

Insurance  on  Merchandise.  .  . 
Insurance  on  Real  Estate . . . 
Insurance  on  Furniture  and 

Fixturea    

Insurance  on  Other  Property. 
Pay  Rent  on  Store,  per  month. 
Commenced  Bttsineta.  .Lease   Expires. 

Bank    with 

Date  of  last  Inventory 

Ever  burned  out 

Keep  following  Books  of  Account. 


::l 


Included  In  Liabilities  In  Above  Statement:  Merchandise  con- 

slsuot 

Mortgage  on  Merchandise t Suits  pending Dry  Goods t.. 

Mortgage  on  Furniture  and  Fixtures t Judgments t. .  Notions {.. 

Mortwwe  on  Horses  and  Wagons f Judgment  Notes t..  Clothing     (. . 

Mortgage  on  Other  Personal  Boots  and 

Property t Mechanics' Liens f. .  Sboea    I.. 

What  .proportion  of  Bali-s  Is  Amount  of  Balea  Bate  and 

on  Credit S Last  year S..  Cape    I.. 

REMARKa — Olve  details  and  explanations  of  queatlons  not  fully  answered 

above Oroceriee     I.. 

Crockery     i.. 

It  you  have  pledged  or  transferred  outstanding  accounts  or  property  remaining 

underyourcontrol,  state  amount  thereof  and  amount  received,  or  to  be  received,  Hardware    .. 

on  account  of  such  pledge  or  transfer 

Total 

The  sboTc  intsment,  both  printed  and  written,  hu  brcn  carefoIlT  md  by  die  nndecilgntd.  ewJ  I* 

a  fall  and  correct  ■utcmcnl  of  my  or  oar  finsndal  condidon  ae  of ■*> 

_  Firm  sigiutture ..-. 

Town State By a  member  of  the  Arm. 

On  the  reverse  side  of  this  sheet  Is  given  a  complete  list  of  houses  I  or  we  deal  with,  and  amount 
owing  each  one:  also  a  description  of  ail  real  estate  owned. 
Stanoud  Form  U. 

IBent  by  a  commercial  bouan  to  be  fllled  out  by  an  individual  or  partnership  Orm. 


FonnV. 


CREDIT  AND  THE  CREDIT  MAN 
PROPERTY  STATEMENT  BLANK* 

-      ^  „^  .-a..^  b.  tfc.  W.*M»I  A        111 


«67 


To  RICH.  MANN  »  CO..  N.W  YaAi 


purpoM  a 
I  foiiowtal 


For  tba 
to  you  tbj 

iMuivMiey.  or  ta 


ol  obUUUM  endit 
■uWBMBt  ol  our 


I  M  tU  llinw 

,'  J  .   ,-,  moda  DurehHwI.  wo  horowlth  nibBtt 

li?2iJ15l^lSu>lU!^  W  toSiJUwiy  noUIy  you  ol 


!..  th.7oiC«tai  itMaBMBt  ol  our  r«oure«  mm  imuim— .  — 

SLmU  cSkMi  la  our  aoMMM  ooadlUpo.      „„„,-,t-^  _,  am.  that  lo  eaao  of  our  laUur*  or 


5r'.i:!XTy?:?^'i:jjr'»'^^ 


■  whleh  you  tovo  fttimi 


HS  •7fcsxsss!r»Sir»'J?o'iyo«'^ 

fXt  eopdltlBM  M  »  p»rt  ol  tt»  unM  ol  »i»  -■—====== 

AOTIVI  BUSIHE88  ABSlTfl.       °*"U* g  ^  1  Aeeoinmod»tloB 


AOTIVI  BUSIHE88  A881T8 
C»ih  ▼•!«•  of  mwehwdlM  on  l»»nd 
H  msnufMturiafc  »w  OMMrlkl, 

1. .  .AnUkad,  f . . .  .«»ftBltk«4, 

t .....••• 

N'otM  and  aawuati,  oaw  vara*. 

Ctih  In  hand 

Cash  in  bank •  •  •  ■  •  •  •  •  - 

Bills  or  aeeounti  r«c«l»ablt,   au* 

(rom  ofleort 

Ptttnta  and  pattomi 

Fixtures  and  machinery.  ■•■•  • 

Total  real  •■tata,  cash  Talue,  f . . . 
Total  enenmbrancea  on  real  astaie 

I 

EqtutT 

Total  Aett^a  Bnalneia  Aaaeta. 


BUSINESS 
LIABILITIES. 

Owe  for  marehan 
diie,  open  aeet., 
of  which  «.. 
ii  past  dna. 

Owe  for  notea  for 
merchandise 

Owe  banks.  . . 

Owe  for  bills  for 
paper  sold. . . . 

Owe    others    for 
borrowed    nion.^ 


Dollars 


ey. 


and 


Owe     taxes 

rent    

Uortgages  on  fu- 
tures and  ma. 
rhinery... 


Cts. 


... 


Total  Bnsiness  Uabilitios. 


Net  worth  in  Bnsinesa. 


OFFICERS 


Name  in  Fnlt 

President    

Vice-Prest 

Secretary    

Treasursr  


Address 


]>ntI0TOB& 


>•••••••«•*••* 

•••••*•*•.»»•. 


.52 
•a 


Accommodation 
Indorsements   .  . 
Indorsed  Bills 
Reeeirable  and 
Otttatanding   . . . 

Jnthorised  Oapiul 

Subscribed . .  .Paid    in . . . 

How  paid  In:  Caah,  •.. 

Other  property.  ....••• 

Incorporated     in     what 

8tat«  and  tsndsr  what 

Oensral  Laws  or  Bp«- 

clal  Aetl 

Nature  of' business  I. . . . 

Date  of  charter  I. ....  ■ 

Bttlta    pending,    and    of 

what  natnret 


Aro  any  merehandiee 
creditors  secured  in 
any  way  I 

Amount  of  annual  bnsi- 
ness     

Annual  expenses 

Annual  diridends . .  ■  • 
When  was  laat  dlTl- 
dend  declared  t 

Bate Insnranea 

carrisd  on  merchandise 

On  flxturas  and 

machinery    

On  real  estate 

Bsgnlar  timt  of  taking 
inrentory 

Koop  bank  account  with 


Keep  tho  following 
'   ^ka  of  account.... 

If  you  hare  pledged  or 
tranaferred  outstanding 
aeconnta  or  property  re- 
maining nnder  your  con- 
trol, atote  amount  there- 
of and  amount  receiTed. 
or  to  bo  reeeired,  on  ac- 
oennt  of  anch  pledgo  or 
transf sr    


MOCABXIi 


,«■••»••«*•••«•••••■ 


S68 


CRKDIT  AND  THE  CREDIT  MAN 


No  extended  commentary  upon  the  contents  of  these 
forms  is  necessary  ut  this  time.  The  items  contained 
here  a:e  discussed  in  the  various  volumes  of  this  series 
of  texts.  The  purj^se  of  presenting  these  forms  is  to 
show  what  particular  facts  the  credit  departments  of  a 
hank  and  a  mercantile  house  are  interested  in;  and  in 
what  sjM'cial  form  or  arrangement  business  men  have 
found  it  most  convenient  to  have  them  presented.  For 
these  reasons  two  distinct  types  of  forms  are  given  cor- 
responding to  the  two  forms  of  business,  the  individual 
or  partnership  and  the  corporation.  The  number  and 
character  of  the  questions  asked  by  the  corporation 
statements  show  how  much  more  important  and  intri- 
cate is  the  organization  of  capital  in  the  corporate  form 
than  is  the  case  with  the  individual  or  partnership  form. 

The  types  which  are  given  as  examples  for  commer- 
cial houses  were  selected  from  a  series  of  six  forms  which 
are  recommended  by  the  "National  Association  of 
Credit  Men."  The  items  printed  upon  the  forms  are  al- 
most identical,  but  the  styles  are  different  (in  shape  and 
arrangement)  the  better  to  fit  in  certain  filing  cabinets 
and  also  to  meet  conditions  in  different  classes  of  credits. 
Special  attention  is  called  to  the  paragraphs  setting  forth 
the  reciprocal  value  of  a  signed  statement.  They  show 
in  part  how  the  association  of  credit  men  is  endeavoring 
to  educate  the  commercial  world  up  to  the  standard  de- 
•  manded  by  a  credit  economy. 

In  estimating  the  worth  of  a  firm  applying  for  credit 
one  writer  suggests  the  following  formula: 

The  credit  man  should  apply  liberally  the  principle  of  depre- 
ciation. Appreciating  the  generosity  with  which  a  merchant 
will  estimate  the  value  of  his  own  resources,  the  credit  man 
should  deduct  10  per  cent  from  accounts  and  notes  receivable 
as  a  reserve  against  bad  debts ;  about  the  same  percentage  for 


SOURCES  OF  CREDIT  INFORMATION 


260 


,„«.hinery;  at  lca.t  10  per  cent  on  account  of  shopworn  .tock, 
„,„!  50  per  cent  from  anything  scheduled  which  appear,  to  be 
of  iiideterminable  value.  If,  after  this  operation,  the  surplus 
„f  assets  over  liabilities  appears  to  have  been  transformed  mto 
H  deficit,  the  credit  man  should  require  security,  or  make  such 
further  investigation  into  the  general  reputation  of  the  firm, 
or  corporation,  involved,  as  would  enable  him  to  accept  the 
risk  with  a  fair  assurance  of  ultimate  realization. 

It  is  new  understood  that  certain  classes  of  assets  on  a  balance 
sheet  arc  more  or  less  fictitious,  that  applications  are  not  often 
„mde  for  credit  based  on  a  showing  of  that  kind.     In  some 
classes  of  business  a  "construction"  account  is  perfectly  legiti- 
mate and  represents  actual  value,  but  the  value  placed  on  a 
.nine,  or  on  real  estate,  etc.,  should  always  be  compared  with 
the  amount  of  working  capital.     It  would  be  generally  safe  to 
„mke  it  a  rule  to  assume  that  where  assets  of  this  kind  are  a 
very  important  feature  of  a  balance  sheet,  while  the  cash  on 
Land  amounts  to  $«.60,  or  thereabouts,  there  is  a  good  deal  of 
"discount  on  stock"  lurking  around  somewhere,  and  not  much 
real  value. 

39   An  example  of  statement  analyns.— In  analyz- 
ing the  statement  the  credit  man  forms  his  judgment 
bv  comparing  the  items  with  the  whole  busmess  situ- 
ation of  the  applicant.    For  example,  the  answer  to  the 
question  "How  much  store  rent  do  you  pay?"  forms  the 
basis  of  several  opinions.    In  selectmg  this  item  for  con- 
sideration, the  relation  of  rent  to  capital,  the  volume  of 
business  transacted,  and  the  profits  are  of  first  impor- 
tance.    It  is  generally  agreed  that  the  amount  of  rent 
a  man  can  pay  does  not  depend  upon  capital  or  the 
amount  of  sales,  but  thp.t  the  rent  and  the  profits  do  have 
a  close  relation.     A  druggist,  for  instance,  could  pay 
out  a  larger  percentage  of  his  sales  for  rental  than  a 
dealer  in  some  staple  commodity  because  drugs  yield  a 
larger  profit  than  the  latter. 


270 


CREDIT  AND  THE  CREDIT  MAN 


Some  men  prefer  to  compare  the  rent  with  the  ex- 
penses of  the  busmess  rather  than  with  the  income.    If 
this  point  of  view  is  taken,  it  is  well  to  bear  in  mind  that 
it  is  only  an  indirect  way  of  arriving  at  the  same  result 
as  by  the  other  method.     Rent  in  no  way  depends  upon 
the  expenses  of  a  business.     Two  men  engaged  in  the 
same  business  may  pay  the  same  amount  of  rent,  and  yet 
the  expenses  of  one  may  be  twice  as  high  as  those  of  the 
other.     If  the  profits  of  the  two  are  not  considered,  the 
only  conclusion  to  be  arrived  at  would  be  that  one  en- 
joyed advantages  which  the  other  did  not;  and  instead 
of  its  being  desirable  that  the  one  who  has  the  greater 
expenses  pay  less  rent,  perhaps  it  would  be  more  de- 
sirable that  he  change  his  location  and  pay  a  higher  rent, 
if  by  so  doing  he  could  increase  his  business  prospects. 
Because  there  is  a  close  connection  between  the  expenses 
of  a  business  and  the  profits,  some  merchants  have  found 
it  possible  to  make  a  rule  for  their  particular  line 
which  says  that  the  rent  shall  bear  a  certain  ratio  to  the 
gross  expense.     One  man  may  think  that  4  per  cent  of 
the  gross  expenses  is  a  conservative  estimate  for  rent, 
while  another  may  say  that  1  per  cent  is  sufficient  in  his 
particular  business. 

These  differences  of  opinion  only  serve  to  show  that 
these  "rules"  were  arrived  at  by  a  process  similar  to  all 
"rule  of  thumb"  methods.  By  practical  experience  each 
man  ascertains  the  amount  of  space  necessary  for  suc- 
cessfully operating  his  business  under  the  conditions 
prevalent  in  his  line,  and  one  of  these  "conditions"  is 
the  usual  rental  for  a  given  amount  of  space.  Having 
ascertained  these  facts,  he  arbitrarily  fixes  upon  a  ratio 
of  rent  to  gross  expense. 

40.  The  reporter  and  the  iraveling  representative. — 
Because  of  the  expense  and  the  fact  that  the  credit  men 


SOURCES  OF  CREDIT  INFORMATION         271 

connected  with  large  establishments  are  too  busy  hi  the 
home  office,  the  method  of  direct  investigation  by  the 
credit  man  himself  can  seldom  be  carried  out  m  practice. 
Therefore,  mdirect  ways  are  devised.     The  represent- 
ative method  most  nearly  takes  the  place  of  the  personal 
interview  of  the  credit  man.    There  are  two  kmds  of 
representatives  used  in  this  method-the  reporter  rep- 
resentative and  the  traveling  representative.     The  dit- 
ference  between  the  two  classes   of  investigators   is 
simply  one  of  responsibility.    The  reporters  are  gen- 
erally young  men,  credit  apprentices,  perhaps,  whose 
duty  it  is  to  visit  the  various  persons  to  whom  the  de- 
partment has  been  referred  as  well  as  the  houses  from 
whom  useful  information  may  be  obtained  concerning 
^he  particular  firm  under  investigation.     This  interview 
method  is  confined  to  the  environs  of  the  house  con- 
ducting  the  inquiry.    Much  depends  upon  the  keenness 
of  the  investigator,  for,  Uke  the  newspaper  reporter,  he 
must  depend  often  for  the  truth  of  the  facts  upon  the 
attitude  of  the  man  he  is  questioning.    He  must  frame 
his  questions  so  that  evasion  is  difficult.    The  man  to 
whom  the  questions  are  put  must  either  answer  directly 
or  reveal  by  his  manner  the  true  information  which  he 
wishes  to  conceal.    The  experience  of  firms  in  the  larger 
cities  proves  that  this  system  gives  the  best  returns  ot 
anv,  although  the  expense  involved  is  heavy. 

The  method  of  employing  traveling  credit  represent- 
atives is  an  outgrowth  of  the  necessity  for  large  firms  to 
have  direct  information  concerning  classes  of  accounts 
which,  because  of  their  number  and  magnitude,  become 
heavy  as  well  as  doubtful  risks.  This  method  is  an  ex- 
pensive  one,  but  the  extent  and  complexity  of  modem 
wholesale  business  is  calling  for  it  more  and  more.  The 
traveling  credit  man  is  the  complement  of  the  travel- 


27« 


CREDIT  AND  THE  CREDIT  MAN 


ing  salesman.  The  responsibilities  call  for  a  man  of  ex- 
perience— one  who  can  critically  analyze  a  customer's 
books  and  stock  and,  if  necessary,  can  make  use  of  the 
information  collected  from  banks,  local  attorneys  and 
agencies.  Such  a  man  becomes  the  best  substitute  for 
the  credit  manager  himself,  for  he  brings  to  the  investi- 
gation a  knowledge  of  both  sides  of  the  situation. 
Knowing  the  business  thoroughly  and  being  experi- 
enced in  the  ways  of  the  credit  department,  he  is  ac- 
quainted with  both  the  creditor's  point  of  view  and  that 
of  the  customer  in  the  particular  case  under  consider- 
ation. 

41.  The  salesman  as  a  gatherer  of  information. — 
Perhaps  the  oldest  way  of  getting  information  by  per- 
sonal representatives  was  through  the  salesman's  re- 
ports. At  first  thought  it  would  seem  a  good  idea  to 
unite  the  two  offices  of  credit  man  and  salesman  with  a 
single  "expense  account."  iBut  between  these  two 
offices  there  is  ever  a  thick  partition.  The  self-interest 
of  the  seller  of  goods  rises  like  a  wall  of  adamant,  and 
as  a  consequence  the  demands  of  the  credit  department 
seldom  penetrate  its  thickness. 

Someone  has  said  that  of  the  four  chief  factors  which 
enter  a  salesman's  considerations,  he  himself  comes  first, 
the  credit  man  fourth,  and  in  between  these  two  are  the 
customer  and  the  salesman's  own  firm.  While  it  may 
not  be  safe  to  rely  entirely  on  the  salesman's  judgment, 
the  credit  man  can,  however,  secure  a  certain  kind  of  in- 
formation from  this  source  which  will  prove  valuable 
supplements  to  the  reports  received  from  other  sources. 
The  character  of  the  information  demanded  of  the  sales- 
man should  be  of  a  kind  that  he  can  easily  supply  from 
his  own  observations  and  experience.  If  the  informa- 
tion does  not  require  the  salesman  to  iagk  questions  that 


SOURCES  OF  CREDIT  INFORMATION         273 

may  hinder  a  sale  or  embarrass  the  customer,  much  that 
is  of  value  in  making  a  study  of  credits  can  be  obtamed. 
The  following  form  has  been  used: 


Firm  name   Address   . 

Date    •        Salesman 


Business  good? 


Store  neat? 


In  General 
Growing? 
In  Partictdar 
Well  located? 

Well  displayed? 


Stock  kept  in 

good  order? 
Clerks  well  trained  or  incompetent? 
Proprietor  a  good  business  man? 
Drink?  Gamble?  Other  firms  bought  from? 


Competition? 

Any  advertising 

signs? 

Well  stocked  or 

low? 

Kept  busy? 

Social  standing? 


Each  salesman  is  provided  with  these  cards,  and  when- 
ever he  takes  an  order  from  a  new  customer  one  of  the 
cards  is  fiUed  out  and  enclosed  with  the  order.  If  con- 
ditions seem  to  warrant  it.  the  credit  man  may  ask  for 
a  revised  report  on  the  same  form,  thus  keepmg  the  file 
up  to  date.  A  modification  of  the  salesman's  report  is 
seen  in  connection  with  large  packing  houses  or  firms 
which  conduct  their  selling  departments  through  branch 
houses.  The  local  managers  are  expected  to  obtam  the 
information  which  is  usually  embodied  in  the  salesman  s 
report.  It  is  often  possible  to  substitute  the  local  man- 
ager's report  for  that  of  the  local  banker's  or  attorney's 

report.  .  « 

42.  Agency  method.— ^o  extensive  is  the  use  ol 

credit  that  it  was  found  more  economical  to  establish  a 

new  kind  of  business  whose  duty  it  is  to  devote  its  whole 

III— 18 


274 


CREDIT  AND  THE  CREDIT  MAN 


time  to  the  study  of  commercial  credits.  Its  purpose 
was  to  impose  upon  each  firm  the  necessity  of  gathering 
all  the  information  needed  to  do  business  on  credit. 
This  is  another  illustration  of  the  growth  of  a  new  em- 
ployment because  of  the  economy  in  the  division  of 
labor.  The  best  known  methods  of  gaining  information 
by  an  agent  are  those  of  the  large  mercantile  agencies. 
For  several  years  this  method  was  the  chief  source  of 
credit  information,  but  at  present  the  field  of  credit  is 
being  broken  up  and  special  agencies  are  organizing  to 
furnish  information  along  certain  lines  of  business. 
Then,  too,  commercial  concerns  are  making  use  of  the 
principle  of  cooperation  in  this  branch  of  their  business. 
The  old  method  of  turnmg  a  "dead  beat"  loose  upon  the 
commercial  community  is  a  survival  of  the  old  self -pro- 
tection idea  which  at  one  tune  made  every  man  furnish 
his  own  bodyguard.  If  he  protected  his  own  person 
from  the  criminal,  he  felt  no  necessity  of  warning  his 
neighbor  against  the  marauder  nor  any  responsibility 
for  his  neighbor's  safety. 

Besides  these  agencies,  the  wholesale  house  has  at  its 
disposal  two  other  agents.  These  are  the  local  bank- 
ers or  attorneys,  whose  services  are  secured  by  firms  to 
keep  them  in  touch  with  local  conditions.  Both  will  be 
treated  of  further  on. 

Mr.  T.  J.  Zimmerman,  in  his  book  "Credits  and  Col- 
lections," says  of  the  commercial  agency: 

The  point  at  which  the  commercial  agency  enters  into  credit 
operations  is  between  the  receipt  of  the  order  and  the  shipment 
of  the  goods.  Credit  rests  upon  the  seller's  confidence  in  the 
buyer's  ability  to  pay ;  confidence  results  from  favorable  knowl- 
edge of  a  man's  character,  ability,  and  circumstances.  In  order 
to  decide  whether  his  house  wishes  to  extend  credit  to  an  appli 
cant,  to  determine  the  amount  of  credit  which  this  credit  is  to 


SOURCES  OF  CREDIT  INFORMATION         275 

l,c  granted,  the  credit  man  must  have  certain  general  and  specific 
information.  Such  information  the  commercial  agency  has 
nuide  it  its  function  to  furnish. 

43.  The  commercial  agency.— The  commercial  agency- 
originated  as  a  result  of  the  panic  of  1887.    New 
York,    the    commercial*  and   financial   center   of   the 
United  States,  suffered  greatly  from  the  wild-cat  spec- 
ulations of  the  West,  and  it  was  felt  necessary  to  devise 
some  means  whereby  the  '  redit  responsibility  of  the  mer- 
chants might  be  assured.     In  response  to  the  needs  of 
the  times  came  the  first  mercantile  agency,  which  was  es- 
tablished in  New  York  in   1841.     Its  business  was 
limited  at  first.     Its  reports  were  meager  and  its  facili- 
ties for  obtaining  reliable  information  were  incomplete. 
But  in  1860,  when  Mr.  Dun's  name  became  associated. 
with  it,  the  mercantile  agency  had  gained  a  recognized 
and  assured  position  in  the  business  world.     Meantime, 
however,  a  rival  institution  had  appeared.     This  was 
the  firm  of  J.  M.  Bradstreet  and  Company,  which  had 
its  beginning  in  1849.     Although  many  agencies  with 
similar  purposes  have  been  organized,  these  two  are  the 
only  ones  that  have  survived.     They  both  have  so  wide- 
spread a  reputation  that  they  keep  competition  out  of 
this  field  by  the  sheer  force  of  a  name— a  form  of 
monopoly  not  always  recognized.     They  have  covered 
the  country  with  branch  offices  and  have  extended  their 
connections  to  all  parts  of  the  busmess  world.     They 
purpose  to  trace  the  experience  of  a  person  engaged  in 
business,  to  discover  the  real  character  and  general  rep- 
utation which  a  man  holds  not  only  in  business  but  in 
society,  and  to  investigate  the  extent  of  his  operations 
and  the  strength  of  his  business  position. 
44.  Haw  information  is  collected. — This   informa- 


276 


CREDIT  AND  THE  CREDIT  MAN 


tion  is  collected  by  means  of  a  system  whose  organiza< 
tion  reaches  every  business  man  in  the  United  States  and 
Canada.  Several  independent  district  oifices  located 
in  the  large  cities  of  the  country  form  the  central  points 
for  the  accumulation  of  business  news.  In  the  large 
cities  the  work  of  collecting  information  is  specialized. 
There  are  separate  reporters  for  different  kinds  of  trade. 
In  the  wholesale  trade,  for  example,  there  are  various 
individual  lines  of  business  and  a  man  is  assigned  to 
look  after  each  special  line.  But  outside  of  the  large 
centers  the  business  territory  is  divided  into  districts 
and  the  reporter  assigned  to  the  particular  district  gath- 
ers information  along  all  lines  of  trade.  In  order  that 
the  information  may  be  gathered  quickly  and  yet  be 
reliable,  these  reporters  are  kept  in  their  positions  year 
after  year.  They  become  thoroughly  acquainted  with 
the  detailed  business  facts  and  trade  conditions  in  their 
line  of  trade  or  within  their  districts.  They  can  judge 
of  the  importance  of  any  new  developments  or  rumors 
aifecting  the  commercial  standing  of  the  firm  or  firms 
within  their  jurisdiction. 

Besides,  each  independent  office  has  sub-offices  in  the 
smaller  cities,  the  number  depending  upon  the  size  of  the 
territory  and  the  amount  of  business  carried  on.  Some 
district  offices  have  as  many  as  eight  sub-offices,  others 
only  two.  The  work  of  these  is  much  like  that  of  the 
larger  cities.  In  a  city  of  40,000  people,  for  example, 
the  sub-office  sends  reporters  to  the  smaller  towns  and  the 
territory  round  about.  These  men  make  regular  trips 
and  keep  their  managers  in  touch  with  the  conditions 
along  their  routes. 

But  in  addition  to  the  news  that  can  be  gathered  by 
reporters  at  intervals,  there  are  often  many  develop- 
ments and  changes  that  need  to  be  reported  to  the 


SOURCES  OF  CREDIT  INFORMATION         «77 

agency  immediately.  To  look  after  this  kind  of  inf or- 
mation  the  agencies  employ  local  attorneys  who  reside 
in  the  various  towns.  These  men  report  news  of  im- 
portance which  needs  the  immc  .-te  attention  of  the 
district  office.  Although  they  do  not  give  their  whote 
time  to  this  work,  these  representatives  are  helpfiJ  in 
supplementing  the  work  of  the  regular  reporters.  One 
feature  of  the  reports  is  their  regulanty.  The  city 
reporters  make  daily  reports  and  the  county  repre- 
sentatives send  in  theirs  at  longer  intervals  of  time. 

45.  Content  of  the  agency  reports.— The  mtoraia- 
tion  appearing  in  these  reports  may  he  divided  into  t^ee 
classes.    First,  there  are  the  strictly  news  items.     Sec- 
ond, there  are  the  "impressions,"  that  is,  judgments  of 
tendencies.     Is  a  business  going  backwards?     The  re- 
porter may  have  heard  rumors  of  growing  carelessness 
on  the  part  of  the  merchant,  whose  stock  is  running  down 
and  whose  manager  is  inattentive  to  the  needs  of  the 
business;  or  it  may  be  that  a  firm  has  increased  its  cap- 
ital and  is  branching  out  in  new  Unes.    Third,  there  arc 
the  special  reports  growing  out  of  a  request  on  the  part 
of  a  subscriber  for  special  information  concemmg  a 
customer,  or  from  a  desire  on  the  part  of  the  agency  to 
gain  information  concerning  a  new  firm.    The  agency 
prepares  these  reports  not  merely  for  the  convemence 
of  the  subscriber,  for  they  wish  to  publish  the  ratings  of 
the  new  house  in  the  next  quarterly  book.    Whenever  a 
district  office  wants  a  special  report  on  some  merchant 
outside  its  territory,  it  notifies  the  sub-offi^,  and  from 
here  a  reporter  is  sent  out  to  gather  the  facts  wanted 
for  the  report.     Copies  of  these  are  made  \fjt  is  an 
important  one  and  sent  to  the  several  district  offices. 
This  is  done  so  that  time  may  be  saved  should  the  new 
firm  seek  to  get  credit  outside  the  agency's  district. 


878 


CREDIT  AND  THE  CREDIT  MAN 


In  order  that  all  reports  may  be  made  to  the  district 
office  in  the  shortest  time  and  with  the  greatest  secrecy, 
the  agency  has  a  special  telegraph  code  which  is  used 
in  all  reports  made  by  wire. 

46.  Methods  by  which  the  information  is  distributed. 
—How  does  the  agency  distribute  this  information 
which  it  has  gathered?  The  names  of  merchants  and 
manufacturers  with  business,  capital,  and  credit  ratings 
throughout  the  United  States  and  Canada  are  issued  to 
subscribers.  By  the  payment  of  an  extra  fee,  each  cus- 
tomer of  the  agency  is  given  two  books  of  reference. 
These  are  merely  the  quarterly  reports  put  into  perma- 
nent form  with  corrections.  In  order  to  make  use  of 
the  information  received  daily  from  reporters,  the 
agency  publishes  daily  sheets  informing  their  subscribers 
of  all  failures,  new  incorporations,  changes  of  owner- 
ship and  so  on.  And,  finally,  the  agency  furnishes  the 
special  reports  concerning  the  character  of  certain  firms, 
which  inf  or^nation  is  generally  more  difficult  to  procure. 
They  include  a  record  of  the  man's  business  and  per- 
sonal character,  past  and  present;  his  wealth  inside  and 
outside  of  his  business;  his  debts,  his  social  connections, 
and  his  reputation.  Then  follows  an  analysis  of  the 
business  itself— the  capital,  debts,  outstanding  accounts, 
amount  of  business  done,  its  connections  and  creditors. 
In  a  concluding  statement,  the  agency  oflTers  its  judg- 
ment concerning  the  worth,  credit  limits,  and.  best 
method  of  handling  the  situation. 

Another  feature  of  the  works  of  these  companies  is 
the  review  of  trade  conditions  and  market  information. 
This  is  published  weekly  and  is  accepted  by  the  com- 
mercial world  as  the  most  authoritative  opinion  upon 
trade,    financial   and   industrial   conditions.    Business 


SOURCES  OF  CREDIT  INFORMATION         «79 
men  find  this  of  invaluable  aid  in  measuring  the  credit 

conditions.  .        ,«,  j.     *  *i.« 

47.  Cost  of  the  agency  tervtce.—The  cost  of  the 
most  popular  service  to  merchants  and  banking  houses 
is  $100  per  annum,  but  $60  more  must  be  paid  for  the 
two  extra  books  which  are  published  six  months  apart. 
If  the  merchant  or  banker  wishes  the  special  reports 
he  must  make  the  request  on  a  blank  prepared  by  the 
agency.  He  has  the  privilege  of  receiving  one  hunted 
special  reports  under  his  agency  membership.  Addi- 
tional reports  of  this  nature  are  charged  for  extra. 

48.  Sources  of  the  information.— Tht  sources  of 
the  agency's  information  are  much  the  same  as  th(we 
of  the  individual  firm  when  it  seeks  to  detemme  the 
standing  of  another  concern  applying  for  credit  Ihe 
agency  sends  its  reporter  directly  to  the  firm  under  in- 
vestigation. Questions  are  asked  along  the  hnes  out- 
lined above  in  the  treatment  of  the  special  report.     Ihe 

reporters  generally  insUt  that  the  statements  of  the  firai 
shall  be  signed  by  a  legally  responsible  member  of  the 
firm     This  makes  the  statement  a  better  financial  basis 
for  credit  extension  because  a  false  statement  makes 
the  party  Hable  for  obtaining  goods  under  false  pre- 
tenses.     It  is  now  that  the  reporter's  abilities  are  caUed 
forth.    He  must  form  rapid  judgments  from  what  he 
hears  and  observes  so  as  to  sustain  or  condemn  the  state- 
ments given.    Putting  these  facts  and  unpressions  to- 
gether with  such  indirect  information  as  can  be  acquired 
from  other  people,  he  now  files  the  report  with  the 
agency.     In  the  meantime,  the  district  office  has  had 
other  sources  under  investigation.     A  force  of  clerks  is 
constantly  at  work  examining  the  various  government 
and  court  reports  of  incorporations  and  bankruptaes. 


««0  CREDIT  AND  THE  CREDIT  MAN 

Then,  too,  the  agencj-  uses  the  valuable  Information 
gathered  for  its  own  weekly  publications  from  the  trade 
and  hnancial  sections  of  newspapers,  government  re- 
ports  and  so  on. 

49.  Kinds  of  reports.— The  reports  may  be  divided 
into  three  classes:  High,  medium  and  unfavorable. 
These  estimations  are  based  upon  two  fundamental  ele- 
ments: capital  rating  and  credit  rating.  The  ratings 
are  indicated  by  short  abbreviations.  The  agencies  gen- 
erally  use  about  seventeen  or  eighteeen  signs  for  finan- 
cial  responsibility  and  about  eight  for  credit  standing 
not  counting  the  "blanks."  A  firm  may  be  rated  as  being 
worth  $8,000  to  $5,000  and  be  given  a  second  grade  of 
credit.  Perhaps  a  sign  "21"  is  placed  beside  the  finan- 
cial  rating.  This  means  that  the  capital  rating  is  as- 
signed  on  a  signed  statement.  Another  sign  may  show 
that  the  firm  refuses  to  make  a  statement.  The  credit 
rating  "second  grade"  is  explained  by  little  figures 
which  mean  perhaps  that  the  person  concerned  "pays 
when  ready,  no  regard  for  terms,"  or  "takes  off  dis- 
count m  violation  of  terms."  or  that  there  is  a  "chattel 
mortgage  on  record." 

The  mailing  of  these  ratings  is  the  most  difficult  part 
of  the  agent's  work.  A  few  short  abbreviations  express 
the  labor  of  days,  and  on  these  few  signs  perhaps  rests 
the  fate  of  some  firm's  business  reputation.  The  re- 
porter cannot  form  his  judgment  on  the  capital  strength 
of  a  firm  from  a  single  statement  of  the  concern,  nor 
even  upon  the  basis  of  the  known  cash  investments  or 
the  amount  of  nominal  or  paid-up  stock,  but  he  must 
make  an  appraisal  of  the  commercial  or  par  value  of  the 
firm's  assets.  Not  only  is  the  individual  estimate  of  the 
value  of  the  business  on  the  basis  of  investment  con- 
cerned, but  the  relation  of  its  assets  to  the  market  where 


SOURCES  OF  CREDIT  INFORMATION         «81 


those  assets  are  valued  as  well.     This  accounts  for  varia- 
tions that  appear  from  time  to  time  in  the  agency's  quar- 
terly book.     The  invested  capital  of  a  firm  or  corpora- 
tion may  remain  the  same  for  many  years  and  yet  the 
capital  rating  may  change  often.     This  is  only  a  prac- 
tical illustration  of  that  fundamental  idea  in  economic 
theory  that  the  value  of  a  commodity  or  a  business  is 
not  determined  by  the  cost  of  production  or  the  amount 
invested,  but  rather  by  the  demand  for  goods,  or  if  it 
be  a  business,  by  the  market  value  of  ite  assets.     The 
credit  rating  naturally  tends  to  change  in  the  same 
direction  as  the  capital  rating,  but  this  tendency  may 
be  and  generally  is  checked  by  many  other  factors  which 
influence  the  judgment  of  the  reporter.     Confidence  in 
a  man's  ability  to  pay  may  be  neutralized  or  added  to  by 
evidence  which  shows  a  man's  willingness  to  pay.     Char- 
acter and  social  or  commercial  standing,  as  disclosed  by 
a  history  of  the  firm  for  a  number  of  years,  determine 
the  reporter's  opinion  as  to  the  credit  value  of  that  firm's 
integrity  and  worth  in  terms  of  cash. 

50.  Criticism  of   agency   methods   and   services. — 
The  many  criticisms  coming  from  credit  men  show  the 
increasing  necessity  of  business  concerns  to  watch  their 
margins  of  profit  more  closely.    All  risk  is  a  result  of 
lack  of  knowledge.     If  our  knowledge  of  future  events 
were  complete  there  would  be  no  risk.    Before  the  days 
of  railroads,  telegraphs,  telephones,  and  daily  newspa- 
pers risks  were  greater  in  all  departments  of  human 
activity  than  they  are  to-day.     The  business  world  has 
struggled  to  cut  down  "time  and  distance"  to  a  minimum 
in  order  that  risk  may  be  eliminated.     The  mercantile 
agency  itself  was  called  into  being  because  of  this  de- 
mand.   For  many  years  its  information  was  superior 
to  the  haphazard  methods  of  individual  firms,  and  even 


sm 


CREDIT  AND  THE  CREDIT  MAN 


such  indefinite  statements  as  the  following  illustratim 
offered  by  Mr.  E.  F.  Morgan  in  his  article  entitled 
"Some  Defects  of  the  Commercial  Agency  Report  Sys- 
tem," were  better  in  those  days  before  the  "rush  order 
regime"  began  than  no  "guess"  at  all. 

Jones,  Wm.  H.  Jonesville,  Jones  Co.,  Ga. 

This  party  recently  came  here  from  Smithton,  at  which  place 
he  is  said  to  have  been  in  the  dry  goods  business.  It  is  not 
thought  that  he  accumulated  very  much  while  in  business  at 
Smithton,  though  it  is  said  that  he  owns  a  house  and  lot  there, 
which  is  not  known  to  be  encumbered.  He  could  not  be  seen  at 
his  place  of  business  when  correspondent  called,  so  no  statement 
could  be  obtained  from  him.  He  has  a  stock  of  goods  esti- 
mated to  be  worth  $S,000,  but  it  is  not  known  how  much  he  it 
owing  on  same.  Without  a  showing  from  Jones  it  would  be 
difficult  to  estimate  financial  responsibility. 

The  credit  man  does  not  have  the  large  profit  margin 
to  work  on  to-day,  and  he  nuist  eliminate  all  risk  due 
to  indefinite  and  inaccurate  knowledge  of  the  com- 
mercial situation.  "Above  all  things  give  us  accuracy" 
is  the  demand  of  the  credit  man.  But  accuracy  under 
the  present  system  of  doing  business,  which  measures 
efficiency  in  terms  of  speed,  is  the  most  difficult  thing 
to  attain.  Especially  is  this  true  in  the  case  of  the 
agency  which  has  been  compared  "to  a  huge  machine, 
made  up  of  numerous  intricate  parts,  all  human,  there- 
fore liable  to  occasional  error." 

In  judging  the  agency  one  must  first  of  all  consider 
the  purpose  of  its  reports.  Is  it  to  furnish  information 
so  complete  and  judgments  so  final  that  the  credit  de- 
partment needs  no  further  proof  before  determining 
a  customer's  line  of  credit?  Or  is  the  work  of  the 
agency  simply  a  supplement  to  other  information  pro- 


SOURCES  OF  CREDIT  INFORMATION         «83 

cured  by  the  credit  man  before  arriving  at  conclusions? 
If  the  former  is  its  purpose,  so  say  the  agencies,  it  would 
Ik.'  more  economical  for  credit  departments  to  be  trans- 
ferred to  the  agency's  offices.     There  would  be  no  neces- 
sity for  two  departments  to  perform  a  single  function. 
If  the  latter  purpose  be  considered  the  more  correct  one, 
the  question  arises:  How  well  is  the  agency  supplymg 
information  which  may  be  considered  within  its  p<»si- 
bilities  to  supply  ?    Are  there  any  sources  left  untouched 
bv  them  which  would  advance  the  credit  system  to  a 
higher  plane  of  increased  confidence?    We  cannot  do 
more  than  to  name  the  various  complaints  which  credit 
men  make  against  the  mercantile  agencies.    These  are 
as  follows: 

1.  The  service  is  slow.  .     i,  ^ 

2.  The  reports  of  the  agencies  need  to  be  checked 
by  outside  information. 

'  8.  The  reports  lack  in  detailed  statements. 

4.  The  books  do  not  use  enough  significations  in  the 
ratilig  of  capital  and  credit.  A  pay  rating  designation 
is  demanded. 

5.  The  agencies  have  refused  to  institute  a  thorough 
system  for  the  interchange  of  trade  and  ledger  infor- 
mation. ^L  1.  iU 

It  is  perhaps  in  the  last  of  these  statements  that  the 
credit  men  have  the  best  basis  for  a  complaint.  The 
agencies  are  undoubtedly  well  situated,  both  as  regards 
equipment  and  reputation,  to  undertake  this  work  suc- 
cessfully. So  far  they  have  refused,  probably  for  bus- 
iness reasons.  In  the  meantime,  the  necessity  for  whole- 
sale manufacturing  concerns  to  protect  themselves 
against  "poor  risks"  is  compelling  them  to  obtain  this 
most  necessary  information  independently  of  outside 
assistance.     Their  system  demands  of  them  that  they 


S84 


CREDIT  AND  THE  CREDIT  MAN 


increase  their  confidence  in  each  other  and  protect  them- 
selves by  cooperating  in  furnishing  such  important  in- 
formation as  a  ledger  account. 

51.  Credit  cooperative  methods — special  agencies. — 
The  failure  of  the  general  agencies  to  meet  a  wide- 
spread demand  for  some  modification  of  the  method  em- 
ployed and  the  character  of  the  information  furnished 
has  led  to  attempts  on  the  part  of  various  lines  of  busi- 
ness to  provide  their  own  system  for  furnishing  this 
information  among  themselves  from  their  "ledger  ex- 
periences." The  purpose  of  this  "interchange  system," 
as  it  is  set  forth  by  Mr.  W.  H.  Wheeler,  vice-president 
of  the  Credit  Clearing  House,  is  to  provide  "an  impartial 
medium  between  debtor  and  creditor  and  between  cred- 
itors themselves,  and  to  establish  a  system  whereby  those 
who  are  interested  in  any  account  may  freely  and  unre- 
servedly interchange  the  facts  contained  in  their  ledgers, 
without  the  necessity  of  direct  reference  each  to  the 
other,  without  divulging  this  information  under  their 
own  name,  and  at  all  times  receiving  in  exchange  for 
items  contributed  by  them  the  combined  experiences  of 
all  the  others  interested  in  the  acoount." 

The  blank  report  on  page  285  is  for  interchange  of  in- 
formation between  firms.  This  blank,  with  an  exact 
duplicate,  which  is  filled  in  by  the  firm  seeking  new  in- 
formation, is  sent  to  another  firm.  Thus  some  informa- 
tion is  offered  in  return  for  information  requested. 

The  basis  of  this  new  method  rests  upon  the  principle 
of  cooperation  and  reciprocity.  In  not  living  up  to  the 
spirit  of  reciprocity  some  firms  are  bringing  discredit 
upon  the  interchange  system.  For  example,  one  firm 
will  solicit  information  from  another  without  giving  an 
equivalent  with  the  inquiry.  Another  instance  where 
the  spirit  of  cooperation  is  violated  is  seen  when  a  firm 


SOURCES  OF  CREDIT  INFORMATION 

Form  AT  11-08— lOOM. 

OUR  EXPERIENCE. 

KEEP  THIS  FOR  YOUR  FILES. 


285 


Mess. 


:} 


New  Britain,  Conn. 
We  have order, 


from. 


.P.    O. 


Kindly  favor  us  with  your  experience  and  opinion. 
This  blank  is  adopted 
">^:iirrA:£tio'n  *ol     Yours  truly,        GOOD  FORM  &  COMPANY. 
Credit  Men,  of  which  we 
are  members. 


BOOTS  AXO   SHOES. 


How  Long  Sold? 

Terras:    

Highest  Recent  Credit,  $ 

Owes,  $ Past  Due,  $. 


I'ays    

Other  Information: 


Form  A7  11-08— lOOM. 

RETURN  THIS  TO  US. 


Mess. 


:} 


New  Britain,  Conn . . . 
We  have order,   $. 


from. 


.P.    O. 


Kindly  favor  us  with  your  experience  and  opinion. 

This  blank  is  adopted 

x'tionarA^rStio?.  ^5?     Yours  truly,        GOOD  FORM  &  COMPANY. 
Credit  Men,  of  which  we  boots  and  shoes. 

arc  members. 


How  Long  Sold ? 

Terms :    

Highest  Recent  Credit,  $ 

Owes,  $ •  .Past  Due, 


Pays    

Other  Information; 


286 


CREDIT  AND  THE  CREDIT  MAN 


attempts  to  pass  its  credits  solely  on  the  ledger  experi- 
ence of  fellow  merchants^  and  without  subscribing  to  a 
mercantile  agency.  This  practice  tends  to  increase  the 
number  of  inquiries  unduly.  Such  a  firm  will  get  a 
twenty-five  dollar  order  from  a  concern  rated  at  a  mil- 
lion or  more.  Instead  of  looking  up  the  rating  of  the 
firm  they  seek  to  establish  the  firm's  credit  strength  by 
means  of  a  trade  investigation. 

In  order  to  facilitate  and  at  the  same  time  reduce 
abuses  the  following  rules  were  proposed  at  the  1911 
Convention  of  Credit  Men. 

1.  The  association  blank  shall  always  be  used  in  mak- 
ing inquiries. 

2.  Each  inquiry  shall  show  she  amount  of  the  order; 
and  when  it  is  a  first  order,  shall  so  state. 

3.  If  the  inquiry  is  on  a  customer,  and  is  forwarded  to 
one  with  whom  credit  interchange  is  rarely  carried  on, 
the  inquirer  shall  accompany  his  communication  with  a 
statement  of  his  own  experience,  and  thus  encourage  the 
reciprocal  exchange  of  views. 

4.  Inquiries  shall  not  be  made  except  on  orders 
actually  in  hand,  or  on  an  open  account ;  if  investigation 
is  being  made  with  a  view  to  selling  an  account,  a  letter 
should  be  written  stating  that  fact. 

5.  All  inquiries  to  be  treated  confidentially,  and  under 
no  circumstances  shall  the  subject  of  the  inquiry  be  in- 
formed that  he  has  been  inquired  about.  This  is  funda- 
mental. 

6.  All  inquiries  shall  be  answered  if  possible  on  the 
day  of  their  receipt ;  and  shall  not  be  simply  turned  over 
to  a  bookkeeper  or  clerk,  but  shall  pass  through  the 
hands  of  the  credit  man,  in  order  that  special  informa- 
tion he  may  have,  not  appearing  on  the  books,  may  be 
furnished. 


SOURCES  OF  CREDIT  INFORMATION         287 

A  number  of  wholesale  houses 'in  some  line  of  trade 
•  miffht  acree  to  furnish  to  each  other  upon  application 
Mie  credit  standing  of  any  customer  as  presented  by 
iheir  ledger  accounts.  This  method  has  been  tried, 
but  the  amount  of  work  and  the  expense  connected 
with  it  is  likely  to  h.nit  its  wide  use.^  Vf  Iwde' 
"interchange  by  direct  correspondence.  A  further  de- 
velopment of  this  same  idea  is  seen  in  the  organization 
of  "credit  bureaus  by  trades." 

One  of  the  most  advanced  plans  for  reciprocal  ex- 
change is  that  of  the  manufacturing  hatters  who  sell 
the  iobbing  trade.     Their  entire  product  is  put  on  the 

market  through  about  a  dozen  ^^^''^^l.^^^^' 
These  commisf-  m  men  cooperate  m  handhng  the  trade. 
An  "actuary"  is  hired  by  them  to  whom  all  orders  and 
payments  are  submitted. 

in  Columbus,  Ohio,  the  grocery  men  to  the  number 
of  over  five  hundred  have  a  reciprocal  credit  plan,     it 
^vorks  about  as  follows:    Each  grocer  gives  the  names 
of  all  customers,  together  with  all  credit  information 
thev  may  possess  to  the  secretary  of  the  grocers   asso- 
ciation.    This  credit  data  pertains  to  the  amount  of  the 
man's  worldly  goods,  to  the  amount  of  credit  allowed 
him,  to  a  careful  estimate  of  his  moral  strength  his  busi- 
ness ability,  his  habits  and  his  attitude  toward  paying 
his  debts.     The  range  of  information  is  large  and  of  ten 
embraces  the  amount  of  fire  insurance  carried  by  the 
customer,  the  social  aspirations  of  the  wife  and  the  abil- 
ity of  the  family  to  live  within  their  income. 
The  secretary  arranges  all  this  data  into  forms  for 

>The  complaint  is  now  quite  general  that  «»«  ""'"^Vil^.JtSln'i 
increasing  so  rapidly  that  the  credit  men  must  be  careful  ab««t  "1^8 
unnccessarj-  requests  or  the  whole  scheme  must  faU.  Some  ^irms  'e^f^ 
that  the  number  of  inquiries  has  become  so  large  that  an  extra  clerk  is 
liircd  to  give  his  whole  time  to  handling  them. 


S88 


CREDIT  AND  THE  CREDIT  MAN 


'i 


ready  reference.  Upon  application  from  members,  the 
secretary  answers  all  questions  concerning  the  credit  *| 
standing  of  a  customer.  For  instance,  a  charge  cus- 
tomer having  moved  from  one  section  of  the  city  to 
another  wishes  to  open  a  new  account.  The  new  grocer 
immediately  gets  in  touch  with  the  secretary  and  asks 
him  how  Mr.  Blank  met  his  last  obligations.  If  it  is 
found  that  he  is  in  arrears,  credit  will  be  refused  until 
his  old  debts  are  paid. 

The  bureau  also  collect  data  pertaining  to  selling  con- 
ditions in  the  various  districts,  and  this  with  a  weekly 
list  of  customers  who  are  becoming  slow  in  their  pay- 
ments, keeps  the  members  of  the  association  well  in- 
formed as  to  the  possible  failures  and  the  "dead  beats" 
of  the  community. 

In  order  to  make  as  few  mistakes  as  possible  in  judg- 
ing the  customer's  credit  reliability,  the  association  has 
appointed  a  committee  whose  duty  it  is  to  inquire  into 
the  condition  of  accounts  of  those  delinquents  who  have 
been  prompt  in  meeting  obligations  heretofore  and  have 
always  stood  high  in  the  opinion  of  the  credit  men. 
Perhaps  it  is  found  that  the  man  is  worthy  but  is  the 
victim  of  outside  influences  such  as  a  strike  or  the  preva- 
lence of  a  contagious  disease  which  prevents  him  from 
disposing  of  his  goods.  The  committee  is  in  a  position 
to  lend  a  helping  hand  here,  and  by  so  doing  not  only 
saves  the  man  from  failure  but  saves  a  customer  to  the 
trade.  Occasionally  the  committee  upon  investigation 
reports  unfavorably.  The  debtor  is  striving  to  "cover 
up"  with  the  intention  of  defrauding  his  creditors.  An 
early  investigation  of  this  kind  enables  the  members 
of  the  association  to  withhold  further  shipment,  to  col- 
lect their  accounts  and  close  their  relations  with  the 
debtor  before  disaster  overtakes  him. 


SOURCES  OF  CREDIT  INFORMATION 


2S«) 


The  extent  of  the  influence  which  such  an  association 
nn  wield  is  indicated  by  the  number  of  names  of  cus- 
t,„ners  listed  in  the  bureau.  The  Columbus  association 
is  said  to  have  complete  reports  on  oa  er  three  hundred 
tlK.usand  people  doing  business  in  their  vicinity  on  whom 
can  be  given  "complete  ledger  information  instanter." 

By  the  establishment  of  a  central  clearing  house  all 
the  'information  and  requests  can  be  centered  at  one 
n„iiit.     Information  can  thus  be  tabulated  and  distrib- 
uted with  a  minimum  of  labor  and  expense.     This  seems 
to  be  the  direction  which  the  newest  development  of 
collections  and  distribution  of  credit  information  is  tak- 
ing at  present.     As  each  trade  has  its  own  specific 
nerds,  such  as  terms  of  sale,  time  of  shipment  and  so 
0-    it  maintains  its  own  bureau  in  harmony  with  its  own 
inincdiate  interests.     The  limitations  of  this  method 
may  be  seen  by  the  fact  that  each  trade  is  dependent 
upon  a  number  of  other  trades  in  securing  a  reasonably 
complete  record  of  orders  and  indebtedness  of  a  dealer. 
Recognition  of  the  fact  that  information  must  be 
gathered  from  sources  outside  the  particular  trade  has 
l)r()ught  about  a  still  further  extension  of  the  inter- 
change system.     An  example  of  this  development  is  seen 
in  the  Northwestern  Jobbers'  Credit  Bureau,  organized 
in  1905.     This  is  supported  by  the  four  credit  associa- 
tions of  Minneapolis,  St.  Paul,  Fargo  and  Duluth,  and 
at  present  has  160  members  made  up  of  jobbers  residing 
in  these  cities.     It  employs  an  inside  office  force  of 
twenty-one  people  and  an  outside  force  of  thirty. 

Its  purpose  is  to  serve  the  members  with  credit  in- 
formation about  the  trade  and  to  act  as  a  standing  body 
of  experts  continually  on  watch  to  guard  the  members 
an;ainst  losses  due  to  fraud  and  failures. 
Every  day  each  member  receives  a  complete  list  of 

ill— 19 


sno 


CREDIT  A\D  THE  CREDIT  MAN 


.''      t 


firms  about  wlioin  inquiries  arc  being  made.  Each 
member  is  expected  to  respond  by  giving  the  informa- 
tion which  liis  ledger  contains.  The  next  day  the  mem- 
bers receive  a  statement  showing  the  import  of  the  evi- 
<!cnce  collected.  The  statement  shows  the  condition  of 
il:c  debtor's  indebtedness  since  the  last  statement  was 
issued  and  the  number  of  times  and  by  whom  he  has  been 
denied  credit.  No  names  are  used.  The  information 
is  issued  in  key  form.  However,  a  credit  man  familiar 
M  ith  the  account  and  the  conditions  surrounding  it  can 
easily  locate  the  larger  accounts. 

One  unique  activity  of  the  Jobbers'  Bureau  is  in  con< 
nection  with  trusteeship  and  bankruptcies.  Under  its 
administration  the  trusteeships  have  paid  on  an  average 
of  65  per  cent,  while  bankruptcies  have  averaged  about 
40  per  cent. 

Another  feature  of  the  bureau  is  the  provision  by 
which  an  expert  will  be  sent  out  to  investigate  a  cus- 
tomer's business  affairs  for  a  member.  This  service 
costs  the  member  requesting  it  $10  a  day  and  expenses. 
If  the  report  is  favorable  to  the  firm  investigated  no 
publicity  is  given  to  it,  but  if  the  report  shows  that  con- 
ditions are  not  satisfactory  a  representative  of  this 
bureau  takes  charge  immediately.  In  case  of  bank- 
ruptcy no  preference  is  given  the  members  but  all  cred- 
itors are  treated  alike.  An  average  of  about  six  months 
is  required  to  liquidate  a  business.  The  manager  of  the 
bureau  has  a  list  of  about  400  prospective  buyers  to 
whom  he  applies  when  trying  to  dispose  of  bankrupt 
stock,  private  sales  being  favored  as  they  are  more  suc- 
cessful than  public  sales. 

The  magnitude  of  the  business  M-hich  goes  through 
the  bureau's  hands  in  this  connection  is  seen  in  the  figures 
which  represent  the  average  values  distributed  for  each 


SOURCES  OF  CREDIT  INFORMATION         291 


month,  during  the  years  1910  and  1911.     These  aver- 
aged $34,000  per  month  for  1910  and  $49,000  per  month 

for  1911.* 

The  goal  of  many  credit  men  is  to  supplement 
the  trade  bureaus  with  a  "central  clearing  house." 
Other  credit  men  think  that  the  extra  expense  and 
the  many  difficulties  in  the  way  of  providing  a  uni- 
form handling  of  the  information  make  this  method 
impossible  in  practice.  They  would  offer  as  a  substi- 
tution an  independent  corporation  to  take  charge  of  the 
collecting  and  distributing  of  the  inter-trade  informa- 
tion which  pertained  solely  to  the  ledger  experiences  of 
the  various  firms.  Being  independent  of  all  trade  con- 
nection it  could  not  be  accused  of  favoring  any  partic- 
ular trade. 

.>'2.  Advantages  of  interchange  system.— The  fol- 
lowing advantages  are  claimed  for  an  interchange  sys- 
tem: (1)  It  offers  a  means  of  studying  a  customer  in 
the  light  of  two  ledger  accounts — his  own  and  his  com- 
petitor's. 

(2)  Much  valuable  information  not  directly  sought 
comes  to  a  firm,  often  anticipating  the  need. 

(3)  It  helps  to  put  a  check  upon  a  dealer's  tendency 
to  overtrade.  Some  buyers  make  a  practice  of  paying 
their  bills  promptly  to  the  firms  from  which  they  wish 

a  reference."  With  a  good  record  of  this  kind  they 
purchase  heavily  of  other  firms.  Under  the  interchange 
system,  this  increased  indebtedness  can  be  detected  and 
the  person's  line  of  credit  Umited  accordingly.  The  sys- 
tem offers  the  same  protection  against  fraudulent  over- 
buying— that  is,  buying  a  large  stock  preparatory  to  a 
bankruptcy. 
(i)  The  collection  department  is  helped  by  a  knowl- 

1  Bulletin,  Xational  Association  of  Credit  Men,  July,  1911. 


292 


cri:dit  and  the  credit  man 


p!> 


edge  of  the  trader's  entire  obligations.  JMerchants  are 
often  overtaken  by  calamities  not  within  their  control, 
but  if  allowed  time  they  may  be  able  to  right  themselves. 
Some  one  creditor  by  forcing  his  claims  might  at  this 
time  ruin  all  chances  for  his  recovery.  If  all  the  cred- 
itors work  together  thej'-  may  not  only  save  a  hundred 
cents  on  the  dollar,  but  a  good  customer  for  the  future. 

( 5 )  A  strong  moral  influence  is  exerted  over  the  mind 
of  the  trader.  He  knows  that  his  shortcomings  as  a 
business  man  will  be  published  over  the  whole  field  from 
whence  he  expects  to  get  credit.  It  gives  a  strong  sup- 
port to  the  maxim  that  honesty  is  the  best  policy.  As 
a  further  aid,  the  customer's  statements  can  be  verified 
by  comparing  his  own  estimation  of  his  liabilities  with 
the  bureau's  estimate  as  compiled  from  the  ledgers  of 
the  interested  creditors. 

53.  Banks  as  sources  of  information. — Among  the 
indirect  methods  of  getting  credit  information  are  the 
local  banks  and  local  attorneys.  These  sources  are  open 
to  all  the  diiFerent  mediums  for  collecting  information. 
The  various  firms  consult  them  directly,  and  the  general 
agencies  find  them  valuable  aids  in  supplementing  the 
work  of  their  reporters.  These  banks  and  these-  attor- 
neys are  not  of  equal  usefulness  to  the  credit  man.  The 
position  of  the  two  and  their  relations  to  the  commercial 
community  are  very  diff'erent.  Often  the  local  banker 
and  the  distant  jobber  may  have  interests  very  much 
alike  in  the  business  of  the  merchant.  The  merchant 
mav  be  a  borrower  at  the  bank  and  may  wish  credit 
from  a  distant  wholesale  house.  This  possible  and  gen- 
erally probable  connection  between  the  bank  and  the 
merchants  of  a  town  leads  the  wholesaler  to  look  upon 
bank  references  as  of  little  value.  They  divide  the 
bank's  attitude  into  three  classes  depending  upon  cir- 


SOURCKS  OF  CREDIT  INFORMATION 


99fi 


„„,,,ances.     If  the  bunk  holds  the  notes  of  a  local 
.ncrclumt  and  he  feels  that  a  contraction  of  the  mer- 
,h,„t's  credit  might  endanger  his  business,  the  banker 
is  not  likely  to  express  an  opinion  unfavorable  to  the 
merchant.     In  case  the  merchant  is  a  good  customer 
of  tiie  bank,  the  latter  would  naturally  recommend  him 
for  accommodation,  while  another  bank  in  the  same 
town  would  report  the  man  as  unworthy  of  any  consid- 
eration  when  it  came  to  giving  him  credit.     This  bank 
would  probably  not  be  handling  the  business  of  the  mer- 
chant in  question. 

Perhaps  it  would  be  well  to  mention  at  this  point  that 
at  present  the  weakest  part  of  the  credit  system  shows 
itself  here.  There  is  practically  no  credit  interchange 
between  the  bankers  themselves,  while  the  recognition 
of  the  good  that  would  come  from  an  interchange  of 
credit  information  between  banker  and  merchant  is  also 
still  among  the  "things  hoped  for." 

54.  Attorney-at-law.—The   attorney-at-law,    on   the 
other  hand,  is  in  a  position  to  render  valuable  services 
to  the  credit  man.     He  is  in  a  position  both  by  training 
and  profession  to  become  acquainted  with  and  to  weigh 
the  facts  of  business  in  his  locality.     Then,  too,  his  rela- 
tions to  the  community  enable  him  to  use  this  informa- 
tion without  violating  any  trade  confidences  or  without 
prejudice  to  his  own  business  interests.     Especially  well 
(nullified  is  he  to  report  upon  the  results  of  litigations 
aiul  other  legal  matters  which  are  important  in  deter- 
mining the  credit  standing  of  a  merchant. 

In  cities  which  are  large  enough  to  afford  an  extended 

amount  of  business,  law  firms  have  found  this  class  of 

...ncrcial  business  so  profitable  that  they  have  installed 

pecial  department  to  handle  the  gathering  of  credit 


coium 


a  s 


information.     The  files  of  such  firms  are  becoming  rich 


iU 


CREDIT  A.<D  THE  CREDIT  MAN 


with  accumulations  of  credit  data.  Some  years  ago 
credit  men  kept  card  indexed  lists  of  attorneys  for  pur- 
poses of  credit  reporting,  but  this  method  has  been  su- 
perseded recently  by  "law  lists"  published  by  responsible 
houses.  The  lists  are  revised  frequently,  and  lawyers 
whose  names  appear  are  under  contract  to  act  as  agents 
for  supplying  credit  information  to  firms  which  apply 
for  it. 


SOURCES  OF  CREDIT  INFORMATION  295 


THE  NATIONAL  ASSOCIATION  OF 
CREDIT  MEN. 

41  PARK  ROW,  NEW  YORK. 


On. 


"  Your  'name  appears  on  our  list  as  having  represented  us,  or  as  being 
r,;,.l.v   to   look   after  our   Interests,   should   occasion   arise   requiring  >our 

"Tn'rloseil,  therefore,  please  find  one  dollar,  for  which  kindly  send  us 
.o„li.lentially  as  complete  a  ^^P-^  as  possible  on  Ihu^Bl^nk^o^^^^^^^^ 

;;,iious  questions"  Vpecifled. '  Dei.ayed  "  RKPorrt  ak  or  »o  U„  T.ir"r.roK 
„,:  I'HOMPT,  Please.  Do  xot  disclose  ou»  Name  as  iKauiiiKO.  Hie  our 
nam.-  Hs  l>eing  interested  In  above  business,  and  advise  us  at  once  of  any 
.hn;ic  affecting  bis  or  their  financial  standing.    Yours  truly. 


Name 

liiiitity .... 

lull  names 
all  Partners, 


"'{ 


Town 

■■■■■'■'■'.'.  State 

Xationalltv? Age?. . .  .Married?. 

. . .  .Nationality? Age?. . .  .Married?. 

; . ; Nationality? Age?. . .  .Married?. 

Form  19. — Attornet's  Report  Blank. 


How  long  in  present  business? 

;v::^S?.?^?"!'!'wi::;fr:^V.\\\v;.-.\\;.v.;.;.H;nvj^ 

Ever  been  sued? 

i:;eV"aJked'«i;A;ion?:.'.'.'.'.'.'.'.'.' :}\^^z'  ""'^  •;?'•'""*  °'  °'"^"' 

indebtedness? If  so.  of  what  kind  and  amount? 

Reputation  good,  fair,  or  bad  for  abilitj  ? .^^-  •  •  •  •  • 

iim-eity? ^. Promptness ?....... Is  he  doing  a  good  busi- 

ness'        Location  relative  to  business  center?... ...  • 

....Is  stock  in  good  condition? 

Vo.;; '  Vsllmate"  of '  amouni"  of   stock  Of  ^vWd-s  he  buy  goods  if 

tarried?    • ^ '  

U  it   insured? 9 ' 

Value  of  Real  Estate  above  exemp- 
tions and  incumbrances? | ] "    ' 

Value  of  other  assets? •  •  •  •* 

^..ur  estimate  total  net  worth  above 
ill  delits,  exemptions  and  incum- 
lirances?   " 

Reuarkb. 
Vnv  answers  which  cannot  be  made  in  above  spaces  kindly  Indicate  by  some 
mark  and  amplify  here. 


Attorney's  Name. 


Do  not  Write  below  Ilcaw  I.ine. 
Form  19A.    Reverse  Side  of  Form  1ft 


( iiAPTKii  vr 

CRKDIT  I'ROTKCTIOX 

55.  E/Torts  to  secure  protection. -\n  a  certain  'sense 
the  general  and  si)ccial  agencies,  as  well  as  the  various 
ineans  of  gathering  infonnation.  are  only  different  wavs 
ot  securing  protection.  These  methods  are  cvolvd 
Irom  the  n.side  relations  of  the  creditor  and  his  cus- 
tomers, and  as  such  form  a  distinct  i).)rtion  of  the  credit 
system.  In  order  to  supplement  the  agencies  already 
existing  and  to  imjiart  strength  to  the  who.c  structure 
"t  the  credit  system,  certain  other  means  have  been 
devised  which  act  as  props  from  the  outside  * 

On  account  of  the  nature  of  the  credit  one  is  not 
surprised  to  find  the  principle  of  insurance  applied  in 
this  field.  The  credit  indemnity  companies  supplement 
the  commercial  agencies  in  two  respects:  (i  They 
provide  against  uncalculahle  losses  by  applving'the  the- 
ory  of  averages  to  the  fiHd  of  credit  extensions;  (2) 
they  aid  the  dispenser  of  credit  by  adding  to  the  infor- 
mation of  the  customer  that  information  which  comes 
from  a  close  investigation  of  the  creditor's  business  also. 
Kvery  form  of  business  is  subjected  to  the  losses  inci- 
<lent  to  the  uncertainty  of  the  future.  To  remove  tlii« 
e  ement  of' uncertainty  from  man's  calculations,  the  in- 
stitution of  insurance  Mas  devised.  So  we  have  marine 
insurance,  fire  insurance,  life  insurance,  burglary  insur- 
ance, accident  insurance,  ol<l  age  insurance,  laundry  in- 
surance, and  so  on.     As  soon  as  any  branch  of  business 


CREDIT  IMtOTECTlON 


SO"; 


„r  liuinan  activity  involvinK"  risks  Ik-coiucs  extended 
iiioii^h  so  that  large  luiinlKTs  eaii  be  used  in  a  combina- 
tion of  these  risks,  a  new  form  of  insurance  arises  to 
uNircome  the  economic  disadvantages  of  the  particular 
iiiuirtainty  i>eculiar  to  this  branch  of  activity. 

The  principle  which  underlies  all  forms  of  insurance 
is  the  same.  The  difference  lies  in  the  character  of  the 
(lata  which  enters  into  the  averages.  If  we  have  accu- 
rate statistics  of  fires  for  a  term  of  years  and  take  the 
iminber  of  tires  with  a  given  number  of  houses  during 
that  period,  we  get  an  average.  Nothing  is  more  uncer- 
tain than  the  specific  loss  which  will  occur  in  any  par- 
titular  group;  but,  on  the  other  hand,  nothing  is  more 
ct itain  than  the  average  loss  on  all  risks. 

.')0.  Credit  innu ranee. —In  the  same  way,  if  during 
the  periotl  of  several  years,  the  number  of  losses  due  to 
ixtension  of  credit  is  known,  it  is  possible  to  classify  the 
losses  and  arrive  at  a  rormal  or  average  loss  H.it  a 
oioiip  of  commercial  houses  or  any  particular  house 
which  has  a  large  number  of  credit  customers  may  sus- 
tain in  a  year's  time.     Accordingly  we  have  companies 
which  will  insure  a  manufacturer  or  wholesaler  against 
losses  arising  from  selling  goods  on  credit,     i'he  usual 
iiu'thod  is  an  investigation  by  the  company  of  the  whole- 
saler's books  to  determine  what  the  average  loss  for  the 
past  five  years  amounts  to.     This  loss  must  be  borne  by 
the  firm  itself.     The  company  considers  this  loss  as 
within  the  realms  of  certainty,  and  insurance  has  to  do 
with  uncertainty.     Therefore  it  is  only  the  losses  in 
excess  of  this  "initial"  loss  that  can  be  insured.     The 
wjiolesaler  will  be  retjuired  to  sell  to  retailers  of  a  certain 
commercial  rating  and  the  premiums  charged  will  de- 
pend in  large  measure  upon  the  grade  of  rating  allowed, 
i'herefore  the  amount  of  credit  that  can  be  allowed  to 


298 


CREDIT  AND  THE  ("REDIT  MAS 


any  one  purchaser  is  depeiulent  iij)on  the  size  of  the 
])()hey  and  the  rating-  of  the  dehtor. 

In  illustration  of  the  method,  let  us  assume  that  a 
wholesale  firm  has  gross  sales  of  $100,000,  and  the 
normal  loss  figured  over  a  period  of  five  years  is  $1,000 
or  1  per  cent.  The  amount  of  insurance  allowed  the 
firm  might  be  represented  by  a  bond  for  $2,500,  on  which 
f'  re  could  be  an  annual  premium  of  $125  or  5  per  cent, 
i  J'  .  ise  of  a  loss  of  $1,000  or  under  during  the  year,  the 
wholesale  firm  would  get  nothing  from  the  insurance 
company,  yet  all  losses  over  the  initial  $1,000  up  to 
$2,500  would  be  recoverable  within  certain  restrictions. 
These  restrictions  are  regulated  by  the  credit  standing 
and  the  capital  of  the  debtors  of  the  firm  as  determined 
by  the  ratings  of  the  commercial  agencies.  Losses  sus- 
tained from  the  failure  of  "rated"  customers — those 
having  a  capital  rating  followed  by  a  first  or  second 
credit  rating — are  covered  by  the  full  amount  ( 100  per 
cent)  of  their  debts  or  perhaps  up  to  an  agreed  per- 
centage of  their  capital;  while  losses  on  the  "ofF-rated" 
— those  with  poor  or  no  ratings — are  never  covered  for 
more  than  a  part  of  the  loss  sustained  through  them. 

57.  Business  houses  classified  by  credit  underwriters. 
—Just  as  the  underwriter  determines  the  class  to  which 
each  new  applicant  for  fire  insurance  belongs,  so  the 
credit  underwriting  company  investigates  the  condition 
of  the  commercial  house  to  be  insured.  It  must  first 
determine  the  line  of  business  that  the  applicant  for 
credit  insurance  follows.  There  would,  of  course,  he 
a  difference  in  the  character  of  the  risks  connected  with 
a  wholesale  liquor  house  and  those  pertaining  to  a  whole- 
sale hardware  firm.  The  class  of  customers  with  whom 
the  applicant  deals  is  the  next  consideration,  and  then  the 
business  policy  of  the  applicant  himself.     For  .         is- 


CREDIT  PROTECTION 


299 


I'f 


j„nicrs'  standing  the  credit  insurance  companies  rely  ni 
a  larsre  measure  upon  the  various  agencies  which  make 
it  their  business  to  collect  information.     As  mentioned 
lid'ore,  the  mercantile  agencies  have  amassed  a  vast 
amount  of  valuable  commercial  data  and  statistics  of 
I'ailures.     By  these  means  the  "commercial  mortality" 
can  be  classified  according  to  different  trades,  localities 
and  commercial  considerations.     Then,  too,  the  mercan- 
tile agencies  supply  valuable  data,  all  bearing  on  credit 
)nditions  regarding  any  specific  business  concern. 
Although  much  can  be  learned  concerning  the  insur- 
•ince  risk  of  a  wholesale  firm  by  investigating  the  cus- 
tomers of  the  house,  still  the  chief  basis  for  determining 
the  normal  loss,  the  per  cent  and  fixed  limit  of  indemni- 
fication, and  the  premium  per  year,  is  in  the  inside  inves- 
tioation  of  the  wholesale  house  itself.     It  must  disclose 
horn  its  books  the  class  of  customers,  the  volume  of  busi- 
ness, the  size  of  the  accounts,  the  terms  on  which  goods 
are  sold,  the  run  of  its  collections  and  the  general  credit 

58.  Arguments  in  favor  of  credit  insurance. —All 
I'orms  of  insurance  must  have  some  economic  justifica- 
tion or  they  will  not  survive.     The  economist  and  the 
i)iisiness  man  have  the  same  tests,  but  they  are  expressed 
I'rom  two  different  points  of  view.     The  economist  uses 
the  test  of  utility.     He  argues  that  uncertainty  results 
in  a  lower  degree  of  productivity,  or  in  a  smaller  surplus 
of  utility,  than  would  be  the  case  were  uncertainty  les- 
sened or  removed.     By  minimizing  this  uncertainty  it 
I'ollows  that  insurance  is  productive  of  wealth.     The 
\)usiness  man  reaches  the  same  goal  by  a  like  test,  only 
^ji  a  very  practical  way.     He  asks:  "Does  it  pay?"     By 
tliis  he  means,  when  applied  to  credit  insurance,  does 
'i  add  income  to  his  business  and  is  the  cost  of  adopting 


300 


CREDIT  A\n  THE  CREDIT  MAX 


it — the  premium — necessary?     -(Vre  tlie   losses  on   the 
average  large  enough  to  make  insurance  necessary' 

The  indemnity  companies  claim  that  credit  insurance 
does  pay  according  to  either  test.  It  gives  the  husiness 
man  control  over  his  costs.  He  knows  at  once  what 
costs  are  due  to  had  dehts  and  he  can  enter  his  insurance 
])remium  uj)on  his  books  without  waiting  for  the  fend 
of  the  year.  By  adding  this  to  his  other  fixed  expenses 
he  can  ascertain  the  exact  production  and  costs.  Then, 
too,  being  secured  from  any  excessive  loss,  he  can  com- 
pute his  profits  with  certainty.  Xo  longer  does  he  need 
to  worry  over  his  book  credits.  He  has  exchanged  an 
uncertain  expense  for  a  certain  expense,  and  his  mind 
is  free  to  watch  the  productive  part  of  his  business  with 
greater  keenness.  As  he  now  has  some  one  with  whom 
to  divide  responsibilities  and  losses  he  can  increase  the 
•sales  of  his  house  to  the  maximum  and  at  the  same  time 
keep  the  losses  at  a  minimum.  Although  the  terms  of 
the  bond  offer  him  protection,  yet  it  is  only  within  cer- 
tain restrictions,  and  it  is  for  this  reason  that  the  credit 
man  is  forced  to  watch  his  customers'  accounts  in  order 
to  avail  himself  of  better  insurance  rates,  which  depend 
upon  a  reduction  of  the  average  losses. 

Much  is  claimed  for  credit  insurance  as  a  stimulator 
of  trade  and  a  preventive  of  panics.  By  giv  ing  business 
men  confidence  in  their  granting  of  credits  the  more 
active  they  become,  for  with  increased  confidence  come 
increased  opportunities  for  opening  up  larger  and  newer 
fields  of  business  enterprise.  At  the  same  time,  how- 
ever, confidence  in  doing  this  is  keeping  men  away  from 
the  source  of  all  panics — loss  of  confidence.  Each  man 
feels  that  his  outstanding  accounts  are  secured  to  him 
by  insurance. 
59.  Weak  points  in  credit  insurance. — Many  busi- 


Wmt 


CREDIT  PROTECTION 


301 


ncss  men  are  not  yet  satisfied  that  the  claims  of  the  sup- 
porters of  credit  insurance  have  l)een  reahzed.  lor  m- 
stance,  thcv  question  whether  the  normal  loss  of  a  large 
ii,m  for  a  long  term  of  ears,  if  it  has  averaged  a  certain 
percentage  of  its  gross  sales,  does  not  include  the  very 
iisks  that  the  firm  wishes  to  insure.  If  it  does,  then  any 
premium  paid  for  "losses"  ahove  this  amount  is  simp  y 
in  added  expense  without  any  return.  It  is  extremely 
probahle,  thev  say,  even  though  in  some  one  year  the 
Uses  do  not  exceed  this  normal  amount,  that  the  average 
„f  the  next  five  or  ten  years  will  be  no  higher. 

The  effect  of  insurance  on  the  credit  department  is 
one  to  be  condemned  rather  than  commended,  as  it 
cither  usurps  the  credit  man's  place  entirely,  or  by  divid- 
ing the  responsibility  weakens  his  judgment  as  a  dis- 
penser of  credit. 

In  regard  to  panics  it  is  difficult  to  imagine  an  msur- 
ance  company  strong  enough  to  stem  the  tide  of  distrust 
drawn  on  by  a  general  feeling  that  the  commercial  world 
is  overtrading,  and  a  knowledge  that  losses  due  to  bad 
debts  approximate  two  billion  dollars  every  ten  years. 

60.  National  bankruptcy  Zaw;*.— Laws  of  bank- 
ruptcy are  based  upon  the  fundamental  relation  between 
creditor  and  debtor  as  determined  by  the  law  of  contrart. 
The  theory  upon  which  legal  redress  is  sought  by  the 
creditor  is  based  upon  the  presumption  that  the  debtor 
has  violated  his  contract. 

Early  laws  pertaining  to  insolvency  were  framed 
upon  the  presumption  that  the  bankrupt  was  guilty  o^ 
fraudulent  intention.  These  were  creditors'  laws.  The 
development  of  our  industrial  system  and  the  greater 
uttention  paid  to  a  study  of  the  true  relations  between 
creditor  and  debtor  has  brought  about  a  great  change 
Ml  the  object  of  bankruptcy  laws  and  the  scope  of  their 


30^ 


CREDIT  AND  THE  (  KEDIT  MAN 


flf 


n 


application.  The  tendency  of  modern  legislation  in  this 
respect  is  toward  the  recognition  of  the  fact  that  the 
creditor  is  a  risk-taker  in  a  business  along  with  t' 
debtor.  Modern  laws  therefore  do  not  concern  thei. 
selves  primarily  with  fraudulent  practices,  but  with  the 
equitable  distribution  of  the  assets  of  an  estate  among  all 
risk-takers— the  creditors  principally— but  the  debtor, 
too,  is  included. 

The  changed  attitude  of  the  present  day  merchant  as 
contrasted  with  former  times  when  men  were  easily  im- 
I)risoned  for  debt  is  seen  in  the  report  of  the  Committee 
on  Bankruptcy  presented  at  the  1911  meeting  of  the 
National  Association  of  3Ianufacturers.  It  says: 
"The  business  world  is  inclined  to  believe  that  the  aver- 
age man  is  honest  and  that  the  greater  proportion  of 
those  men  who  suffer  failure  in  business  are  entitled  to 
release  from  their  obligations  through  the  due  process 
of  law,  and  especially  if  the  courts  and  the  creditors  are 
convinced  that  no  fraud  exists." 

Only  brief  reference  can  be  made  here  to  this  phase 
of  the  subject,  although  every  credit  man  should  know 
the  provisions  of  this  law,  not  only  that  he  may  the 
better  know  his  legal  rights  and  limitations,  but  that  he 
may  support  the  principles  which  are  embodied  in  the 
law.  The  protection  of  the  law  against  legislative  at- 
tack is  distinctly  the  obligation  of  the  credit  man.  What 
the  national  bankruptcy  law  means  to  the  credit  men  of 
the  country  may  be  seen  by  contrasting  the  condition 
before  and  after  the  legislation  of  July  1898,  when  the 
present  bankmptcy  law  was  passed.  On  several  occa- 
sions before  1898,  Congress  enacted  bankruptcy  legis- 
lation, the  chief  acts  being  those  of  1800,  1841  and  1867. 
All  of  these  were  short-lived  and  were  brought  about 
because  of  wide-spread  commercial  disaster  just  previous 


CRKDIT  rROTFX'TlON 


;jo;j 


to  those  dates.     Relief  was  sought  by  legislation  afFect- 
\\]<r  the  relati.  '^ship  of  creditors  and  debtors.     The  ab- 
sence of  national  bankruptcy  laws  put  the  administrator 
of  debts  under  the  control  of  the  individual  states. 
Therefore  each  state  had  its  own  system  of  bankruptcy 
and  no  two  were  alike.     The  only  restriction  put  upon 
the  state  legislation  was  the  federal  constitutional  provi- 
sion prohibiting  any  law  which  impaired  the  obligation  of 
contracts.     The  creditor  who  lived  outside  the  jurisdic- 
tion of  any  state  had  two  great  disadvantages.     One  was 
that  each  state  gave  preference  to  the  local  creditors  and 
the  other  was  that  many  exemptions  were  allowed  the 
hankrupt.     The  latter  was  not  removed  by  the  National 
Bankruptcy  Act  of  1898  nor  its  amendments  of  1910, 
for  the  debtor  whose  estate  is  administered  in  bankruptcy 
is  permitted  to  avail  himself  of  such  exemptions  as  are 
allowed  in  the  state  where  he  has  had  "his  domicile  for 
six  months  or  the  greater  portion  thereof  immediately 
preceding  the  filing  of  the  petition." 

61.  Advantages  of  the  present  law.— The  following 
list  of  advantages  which  are  claimed  for  the  present 
Bankruptcy  Act  may  show  more  fully  by  the  contrast 
what  the  disadvantages  were: 

1 .  The  prevention  of  preferences, 

2.  The  excellent  influence  of  the  law  in  enforcing  concert 
of  action  and  mutual  terms  of  settlement  without  recourse  to 
1i'u;h1  proceedings. 

3.  The  expeditious  adjudication  of  bankrupts,  as  distin- 
guished from  the  tedious  and  expensive  processes  common  to 
>tatc  courts. 

i.  The  election  of  the  trustee  by  the  creditors. 

5.  The  examination  of  the  bankrupt  by  creditors. 

6.  The  adjustment  of  bankruptcies  through  compositions 
n  1th  the  knowledge  and  under  the  direction  of  the  court. 


fJOl 


CREDIT  AND  THE  CREDIT  MAN 


7.  Tlic  prompt  administratiun  of  estates  and  an  avoidance 
of  the  usual  delays  in  litigation. 

8.  The  use  of  contempt  proceedings  to  effect  the  recovery 
of  property. 

.    0.  The  institution  of  auxiliary  proceedings  to  reach  prop- 
erty lying  in  (iiffercnt  states. 

10.  The  sale  of  real  estate  clear  of  liens. 

11.  The  settlement  of  the  affairs  of  corporations   in   bank- 
ruptcy in  the  interests  of  creditors  and  stockholders. 

12.  The  reduction   in   expenses   incident   to   failed    accounts, 
notably  in  the  case  of  attorney's  fees. 

13.  The  acquirement  of  increased  dividends  from  insolvent 
estates. 

14.  The  punishment  of  fraudulent  bankrupts. 

1.5.  The  administration  of  insolvent  estates  wholly  in  charge 
of  creditors  interested. 


62.  Cleaning  of  recent  amendments. — Practically 
every  trade  organization  in  the  country,  wholesale,  re- 
tail, board  of  trade,  chamber  of  commerce,  travellers' 
association  and  the  like,  was  represented  in  the  fight  of 
June,  1910,  to  amend  the  Bankruptcy  Law.  One  fac- 
tion wished  to  repeal  the  law,  the  other  wished  to  amend 
it.  The  amendments  that  were  finally  passed  were  sug- 
gested by  defects  in  the  law  growing  out  of  experience 
in  the  practice  under  it  and  the  decisions  of  the  courts 
bearing  upon  the  administrative  features  that  could  not 
have  been  anticipated  when  the  law  was  first  made. 

The  amendments  passed  were  as  follows : 

( 1 )  Regulation  of  receivers'  fees. 

(2)  Ancillary  jurisdiction. 

(3)  Broadening  of  the  law  as  it  affects  bankrupt  cor- 
porations. 

(4)  Opportunity  for  composition  before  adjudica- 
tion. 


CREDIT  rUUTKCTION 


30-j 


(.5)  Authority  given  a  trustee  with  the  consent  of 
creditors  to  oppose  a  bankrupt's  discharge. 

( (5 )  Making  the  obtaining  of  property  on  credit  upon 
ii  false  statement  in  writing  given  to  a  third  person,  a 
bar  to  discharge. 

(7)  Widening  of  the  definition  of  preference. 

(8)  Compulsory  notice  to  creditors  before  a  bank- 
niptcy  proceeding  can  be  dismissed,  or  bankrupt  dis- 
charged. 

(0)  Giving  to  the  trustee  the  rights  of  a  levying 
creditor  as  against  unrecorded  chattel  mortgages  and 
otlicr  instruments  of  transfer. 

The  amendments  bear  strongest  upon  the  subject  of 
compensation  of  receivers  and  trustees.  Previous  to 
this  time,  men  m  ho  were  custodians  in  a  way,  received 
what  was  subject  only  to  conditions  surrounding  the  case 
and  the  disposition  of  the  court.  The  first  amendment 
therefore  provides  for  an  exact  regulation  of  the  fees 
of  trustees  and  receivers. 

Another  amendment  of  importance  allows  corpora- 
tions to  become  voluntary  bankrupts.  This  was  previ- 
ously prohibited.  The  change  also  allows  creditors  to 
])roceed  against  corporations  and  put  through  involun- 
tary bankruptcy.  This  will,  among  other  things,  avoid 
long  receiverships. 

The  amendment  standing  third  in  importance  pro- 
vides an  opportunity  for  composition  either  before  or 
immediately  after  the  adjudication  of  bankruptcy  by 
the  court.  This  composition  is  only  possible  after  the 
court  itself,  as  well  as  the  creditors,  is  fully  satisfied 
that  good  faith  has  been  exercised  by  all  parties  con- 
cerned, and  that  statements  that  have  been  made  by  the 
del /tor  to  the  court  are  honest  and  complete. 
Another  amendment  also  makes  it  possible  for  the 

111—20 


306 


CREDIT  AND  THE  CREDIT  MAN 


trustee  in  bankruptcy  to  oppose  the  final  discharge  of 
the  bankrupt,  if  he  is  able  to  show  proof  that  a  false 
statement  has  been  made,  or  that  fraud  has  been  prac- 
ticed in  any  way.  Before  this  amendment  was  passed 
it  was  generally  conceded  that  the  trustee  often  was  in 
possession  of  evidence  pertaining  to  the  bankrupt  which 
was  not  obtainable  by  the  creditors. 

The  amendment  in  reference  to  "preference  in  bank- 
ruptcy "  is  also  worthy  of  special  mention.  This  refers 
more  particularly  to  chattel  mortgages,  trust  deeds,  etc., 
which  have  been  in  existence  but  have  not  been  filed. 
This  amendment  defines  at  what  period  of  time  this 
preference  shall  become  operative,  and  then  gives  the 
creditor  an  opportunity  to  exercise  the  common  law  as 
well  as  the  law  of  bankruptcy  in  dealing  with  the  prefer- 
ences. 

68.  Future  of  the  Bankruptcy  Law. — The  future  de- 
velopment of  legislation  pertaining  to  bankruptcy  will 
be  along  lines  of  bringing  the  present  law  into  harmony 
with  administrative  conditions.  Many  large  trade  or- 
ganizations such  as  the  National  Association  of  Manu- 
facturers and  the  National  Association  of  Credit  Men 
have  adopted  resolutions  which  show  the  opinions  of 
those  most  interested  and  which  direct  the  way  for  fu- 
ture legislation.  In  these  resolutions  it  is  declared  that 
the  working  of  the  bankruptcy  law  as  amended  by  Con- 
gress in  1910  is  highly  satisfactory  and  that  they  (the 
organization)  pledge  themselves  to  strive  to  keep  the 
law  in  force  and  to  assist  in  further  amending  the  law 
as  may  be  required  and  as  it  becomes  necessary  under 
changed  commercial  conditions. 

The  opposition  to  the  law  is  chiefly  due  to  the  bad 
administration  in  carrying  out  its  provisions  rather  than 
to  any  objection  to  the  provisions  themselves.    Realizing 


CREDIT  PROTECTION 


mr, 


the  justice  of  this  objection,  the  credit  men's  associations 
of  tiie  country  are  giving  special  attention  to  the  proper 
a.lininistration  of  the  bankruptcy  law  in  their  own  lo- 
calities. For  example,  the  associations  of  New  York 
State  are  trying  to  cooperate  with  trade  organizations 
wit,  reference  to  forming  a  list  of  bona  fide  credit  men 
wlio  would  be  willing  to  act  as  receivers  or  trustees  in 
l)ankruptcv  when  chosen  by  the  judges  of  the  court  m 
their  respective  districts.  Furthermore,  the  national  as- 
,ciation  is  striving  by  every  means  in  its  power  to  gain 


SOI 


the  cooperation  of  trade  organizations  throughout  the 
country  in  watching  the  administration  of  the  law  as  it 
now  stinds.  The  national  office  has  established  a  special 
hureau,  the  Bankruptcy  Law  Department,  which  is  pre- 
pared to  answer  all  questions  pertaining  to  the  act. 
Through  this  bureau,  members  can  investigate  any  mat- 
ters of  seeming  irregularity,  and  learn  authoritatively 
tlieir  rights  under  the  law. 

The    greater   uniformity   in    dealing   with    debtors 
l)rought  about  by  the  National  Bankruptcy  Act  was  a 
decided  aid  to  the  credit  men  of  the  nation.     It  removed 
in  part,  at  least,  many  of  the  differences  and  burdens 
wiiich  the  separate  state  legislations  had  imposed  upon 
the  credit  departments.     This  lessening  of  the  legal  dif- 
ficulties has  given  the  credit  men  more  opportunity  to 
apply  their  energies  to  the  solving  of  those  economic 
problems  which  are  inherent  in  the  very  nature  of  trade 
and  which  are  so  directly  connected  with  the  credit  de- 
l)artnient  of  every  business  house. 

(U.  Credit  men's  associations.— The  first  thing  we 
must  recognize  in  the  beginning  of  a  new  movement  is 
the  disadvantage  in  carrying  on  any  form  of  activity 
\\  ithout  adequate  organization  and  cooperation.  While 
(•()()l)eration  has  been  more  or  less  evident  in  the  various 


;JOH 


CUKDIT  AM)  TIIK  (  RKDIT  MAN 


divisions  of  econoniic  activity,  such  as  is  seen  in  coojxjra- 
tive  production  and  distributive  societies,  and  in  the  cor- 
porate management  of  large  financial  undertakings,  yet 
in  the  field  of  exchange  there  has  been  very  little  progress 
in  this  direction.  It  is  due  perhaps  to  the  fact  that 
effective  cooperation  could  not  be  introduced  here  until 
business  men  were  willing  to  trust  their  competitors  with 
trade  knowledge,  the  secrecy  of  which  had  been  consid- 
ered the  one  absolutely  essential  requisite  of  every  busi- 
ness. To  trust  a  competitor  with  information  which 
disclosed  the  standing  of  a  customer  might  mean  that 
you  were  surrendering  to  an  enemy  a  knowledge  of  that 
customer's  strong  and  weak  points  which  had  taken  one 
years  to  acquire.  But  experience  showed  that  the  great 
selling  houses  had  much  in  common.  The  creditors  were 
natural  allies.  The  opponents  of  the  National  Bank- 
ruptcy Law  were  the  debtor  communities  and  not  the 
creditors,  and  it  is  now  being  more  and  more  clearly 
seen  that  the  safety  of  all  creditors  mav  be  more  firmlv 
secured  if  each  creditor  will  add  his  experience  to  that 
of  the  others,  and  in  this  way  create  a  cumulative  fund 
of  credit  information — a  fund  that  may  be  drawn  upon 
by  all  and  used  as  a  preventive  against  bad  debts.  The 
Bankrupty  Law  helps  in  the  more  equitable  distribution 
after  the  failure,  while  cociperation  among  credit  men 
helps  to  prevent  the  failures. 

65.  National  association. — The  organization  which 
stands  sponsor  for  this  newest  form  of  cooperation  is 
the  National  Association  of  Credit  Men.  This  asso- 
ciation was  organized  in  1896  at  Toledo,  Ohio.  It  was 
an  outgrowth  of  the  discussions  at  the  World's  JMer- 
cantile  Congress  in  June,  1893,  which  was  held  under 
the  auspices  of  the  Chicago  Exposition. 

There  had  been  various  associations  prior  to  this,  such 


CREDIT  PROTKCTION 


:109 


,,s  credit  cm^panies  or  bureaus  for  the  exchange  of  inf or 
lution,  but  tlie  scoiK.  «f  operations  wan  lunited.     Sti 

sc  formed  the  basis  for  the  national  organization  and 
,.  to-dav  brunches  of  the  national  organization,  and 

.,V  of 'them  yet  carry  on  the  functions  of  a  cred 

...  lug  house,  while  the  national  organization  of  credit 
tlines  itself  to  the  broader  field  of  formulatuig 
,,a  directing  the  principles  of  credit  m  g^^^!'  J^^^ 
objects  of  this  association  are  summed  up  ««  i«"°^^; 

1  The  organization  of  individual  credit  men  and  ot 
ass(,ciations  of  credit  men  into  one  central  body. 

o  They  purpose  to  render  a  more  uniform  and  hrm 
Lai  for  granting  credit  in  every  branch  of  commercial 

'ir  They  seek  to  reform  the  laws  which  are  unfavor- 

•il)le  to  honest  debtors  and  creditors. 
4    They  demand  new  laws  beneficial  to  commerce. 

>'  They  seek  to  improve  the  methods  of  gathering  and 
aissemi..dting  data  in  relation  to  credits. 

0.  They  wish  to  amend  business  customs  to  the  beneht 
of  all  commercial  interests. 

7.  They  wish  to  provide  "a  fund  for  the  protection  of 
numbers  against  injustice  and  fraud."  .      ^,    ^^ 

These  objects  have  been  worked  for  with  zeal.  There 
Ik.s  been  considerable  success  in  the  spreadmg  of  intor- 
nuition  and  the  creation  of  a  more  friendly  feeling  be- 
tween the  various  commercial  interests.  Through  the 
efforts  of  the  association  the  attacks  against  the  ^  ational 
Bankruptcy  Law  were  thwarted,  while  the  efforts  to- 
ward constructive  legislation  have  been  rewarded  by 
many  advanced  national  and  state  laws. 

Tiie  growth  of  the  Association  has  been  phenomenal. 
Its  membership  in  1911  was  over  14,400.  and  some 

.1'  the  local  branches  had  oVer  1,000  members.     Ihe 


510 


CUKDIT  AM)  Tin:  CUKDIT  MAN 


annual  meetings  arc  marked  by  the  numl)er  of  disais- 
sions  and  papers  pertaining  to  the  education  of  business 
men  in  this  department  of  commercial  activity.  As  an 
educational  center  for  credit  men  the  Association  per- 
forms its  most  useful  function.  The  business  literature 
is  made  up  of  valuable  articles,  pamphlets  and  addresses 
published  by  a  department  established  for  this  purpose. 
These  publications  embrace  many  subjects  outside  of 
credits.  We  find  among  them  the  following:  Account- 
ing and  bookkeeping,  banks,  bank  credits,  bankruptcy 
law,  business  abuses,  business  principles  and  customs, 
trade  conditions,  terms,  datings  and  discounts,  elements 
of  credit,  and  fire  insurance  and  its  relation  to  credit. 

The  credit  departments  of  all  branches  of  commerce 
are  trj'ing  to  strengthen  themselves  in  other  directions 
by  organization.  The  heavy  risks  attached  to  the  exten- 
sion of  credit  under  a  broad  and  extensive  commerce 
have  called  into  existence  the  institution  of  credit  insur- 
ance. Although  the  benefits  of  this  protection  are  not 
generally  acknowledged  by  credit  men,  many  of  those 
against  it  base  their  objection  upon  the  practical  and 
incomplete  workings  of  the  institution  rather  than  upon 
the  principle  of  credit  insurance. 

lii  securing  national  bankruptcy  legislation  great 
advancement  in  the  establishment  of  uniformity  in  the 
legal  relations  of  both  creditors  and  debtors  has  been 
made.  In  some  respects  this  has  proved  to  be  the  great- 
est gain  which  the  commercial  world  has  received  from 
any  quarter.  It  marks  a  distinct  advancement  in  com- 
mercial development.  :Much  credit,  however,  for  this 
must  go  to  the  third  factor  as  represented  by  the  Na- 
tional Credit  Men's  Association.  By  persistent  efforts 
the  credit  men  have  organized  into  a  body  whose  influ- 
ence is  national  in  character  and  which  serves  as  a  rallv- 


t  UEDIT  PROTECTION 


811 


i„.  point  for  all  movements  which  make  for  conunercml 
siruritv  and  stability  of  credit. 

(j(5.  'imiwrtancc  of  credit  men's  Msodatiom.  -Kvery 
.Knartment  in  a  system  or  organization  pertaunng    o 
iH.siness  has  two  important  relationships.    One  has  to 
,10  with  the  outside  or  allied  interests  and  the  other  with 
the  various  departments  of  the  organization  itself.     1  he 
,,Hlit  department  is  no  exception.     It  is  indirectly  con- 
nected with  the  whole  field  of  exchange  from  the  outside. 
a.ul  it  is  closely  associated  with  the  selling  departments. 
the  collection,  and  accounting  departments  of  its  own 
hi.siness.     It  has  already  been  shown  how  closely  the 
credit  departments  of  every  line  of  business  are  being 
drawn  together.     The  greatest  achievement  along  the 
Hues  of  cheapening  the  costs  of  production  has  been 
accomplished  in  the  great  industrial  divisions  of  the 
,„aking  and  the  transporting  of  goods.     The  principles 
of  combination  and  cooperation  have  given  the  modern 
hulustrial  system  a  great  advantage  over  all  preceding 
systems.    It  now  remains  for  the  business  world  to  apply 
these  same  principles  to  the  field  of  exchange,  and  it 
appears  that  the  points  of  nearest  approach  at  present 
between  the  various  business  units  lie  in  the  credit  de- 
partments of  each  individual  concern.     The  losses  due 
t.)  "bad  debts,"  and  the  great  expense  necessary  to  pro- 
N  ide  credit  protection  even  in  ordinary  transactions  puts 
upon  the  business  concerns  of  the  nation  a  burden  and 
an  expense  similar  to  that  borne  by  transportation  when 
the  mail  coach  was  the  chief  means  of  sending  goods 
across  the  frontiers.     The  credit  men's  associations  are 
,h)ing  much  both  by  precept  and  example  to  draw  the 
commercial  interests  together  in  the  field  of  exchange. 
Thev  are  "weaving  a  mesh  of  tough  fibre,  confidence, 
which  permeates  the  entire  crystallized  structure  of  our 


iilil 


CREDir  AND  THE  CREDIT  MAN 


commercial  body,  giving  strength  and  cohesion  to  with- 
stand a  stiain." 

07.  liehiHon   of  the  credit  man  to  the  firm. — The 
man  who  organizes  a  business,  raises  the  capital  and 
takes  the  initial  risks  in  any  venture,  is  generally  called 
the  entrepreneur,  or  undertaker  of  the  enterprise.     One 
of  his  chief  concerns  in  deciding  upon  the  undertaking 
is  the  nature  and  extent  of  the  demand  for  his  product. 
Having  once  decided  upon  this  in  a  general  way  and 
haA  ing  established  the  business,  it  then  devolves  upon 
the  various  officers  of  the  concern  to  carry  out  the  details 
of  the  operations.     The  market  still  remains  a  determin- 
ing element  in  operating  the  firm  as  it  was  the  determin- 
ing factor  in  establishing  the  business.     If  the  enterprise 
succeeds,  this  will  be  due  in  great  part  to  the  depart- 
ments  which  deal  with  the  people  who  demand  the 
goods.     In  this  respect  the  sales  department  is  very  im- 
portant.    The  salesman  has  been  called  the  firm's  "other 
image" — the  selling  force  of  a  house  being  its  sole  out- 
side representation.     In  the  same  way  a  good  collection 
department  is  a  source  of  strength  in  determining  the 
success  of  a  business.     But  the  latter  must  meet  the 
puWic  in  the  guise  of  an  adjuster  rather  than  as  a  pro- 
moter, and  as  a  consequence  the  success  of  a  collection 
department  often  depends  upon  the  amount  of  salvage 
that  can  be  rescued  rather  than  the  "profit  on  account" 
to  be  accorded  him.     The  salesman  gets  the  trade,  the 
collector  must  get  :he  money.     The  department  which 
stands  between  these  two  is  the  credit  department.     Its 
manager  must  supply  the  judgment  necessary  to  keep 
the  sales  at  a  maximum  and  the  losses  at  a  minimum. 
This  relation  to  the  public  is  of  very  great  importance. 
In  adopting  a  system  for  handling  the  data  of  a  credit 
department  these  fundamental  considerations  must  be 


CREDIT  PROTILCTION 


313 


tlie  ^rniding  lines.  In  applying  the  principles  in  j)rac- 
ticeftlie  character  of  the  business,  its  size  and  the  many 
local  conditions  must  determine  the  details.  It  may  be 
.aid  in  general,  however,  that  the  system  should  take 
care  of  the  routine  of  the  department  mechanically  and 
leave  the  credit  manager  free  for  the  weightier  affairs 
of  his  position.  The  outlines  of  the  system  will  con- 
nect the  bookkeeping,  the  selling,  the  order  and  collec- 
tion department  with  the  credit  department. 

The  system  must  care  for  data  of  two  kinds :  ( 1 )  Out- 
side information,  such  as  agency  reports  and  so  on,  and 
(•_>)  inside  information  as  gathered  from  the  correspond- 
ence, the  ledgers  and  the  records  of  the  collection  de- 
partments. The  purpose  of  any  system  is  to  provide 
in  the  shortest  time  possible  the  necessary  information 
and  to  ward  against  carelessness  on  the  part  of  the 
credit  man  himself  by  warning  him  automatically  of 
(iaiifrerous  accounts  or  doubtful  customers.  How  this 
is  done  in  the  case  of  a  wholesale  house  may  be  sug- 
gestive, but  it  is  not  given  for  all  kinds  and  conditions 
of  businesses. 

08.  An  illustrative  method— the  mail,  index  cards, 
ctc.—^lczt  credit  mep  desire  to  begin  their  business  day 
by  learning  the  contents  of  the  morning's  mail.  The 
method  of  opening  and  sorting  the  mail  will  depend 
upon  its  size.  In  a  large  department  store,  for  instance, 
it  may  be  necessary  to  bring  only  one  class  of  mail  before 
the  credit  man— the  letters  or  orders— of  new  or  doubt- 
ful customers.  In  other  lines  of  business  the  credit  man 
deems  it  his  duty  to  open  and  classify  every  letter  him- 
sel  t .  There  seems  to  be  a  happy  medium  between  these 
two  methods,  which  saves  the  credit  man  the  burden  of 
routine  and  at  the  same  time  keeps  him  in  touch  with 
the  changes  and  movements  of  the  business.     From  the 


nu 


CREDIT  AND  THE  CREDIT  MAN 


incoming  mail  he  gets  information  regarding  the  stat. 
of  collections  without  consulting  the  ledgers  every  day; 
he  can  see  what  customers  are  taking  advantage  of  dis- 
counts, and  which  ones  are  not  accepting  the  drafts 
drawn  on  them;  he  also  sees  what  new  orders  are  sent 
in  without  considering  the  many  reports  from  the  sales 
and  other  departments ;  while  in  general,  the  latest  news 
affecting  business  conditions,  complaints,  etc.,  are  gath- 
ered from  the  incoming  mail. 

One  system  which  has  proved  successful  provides  for 
the  opening  of  the  mail  by  a  clerk  whose  duty  it  is  simply 
to  write  upon  the  letter  the  index  number  assigned  to 
the  writer.  An  index  number  is  given  to  every  customer 
of  the  house  upon  receipt  of  a  first  order.  The  numbers 
are  consecutive  and  each  state  of  the  Union  has  a  series 
of  its  own.  Thus  John  Brown  of  Minneapohs,  Min- 
nesota, will  be  indexed  as  Minnesota  125;  Fred  Smith 
of  St.  Louis,  Missouri,  will  be  Missouri  420.  The  same 
number  is  used  throughout  the  whole  filing  system. 
Correspondence,  orders,  sales,  ledger  accounts,  mercan- 
tile and  other  reports  are  all  classified  according  to  it, 
and  all  the  forms  necessary,  such  as  index  and  ledger 
cards  and  report  folders  are  made  out  before  the  new 
name  comes  before  the  credit  man.  As  soon  as  a  number 
is  assigned  to  a  customer,  his  name  is  entered  into  a  book 
and  the  index  number  is  written  opposite  it.  This  serves 
as  a  book  of  reference  in  case  the  number  is  forgotten. 

If  the  credit  department  is  at  the  head  of  the  whole 
office  and  can  control  the  policy  and  methods  of  the 
accounting  force,  the  credit  man  can  carry  out  his  system 
most  effectively.  When  this  is  true  the  card  ledger 
system  seems  to  be  the  choice  of  the  credit  department. 
It  does  away  with  the  friction  which  was  common  when 
books  were  called  for  under  the  old  bound  book  ledger 


CREDIT  PROTECTION 


ais 


system.     In  a  large  business  these  books  must  be  m 
cmistant  use  in  the  accounting  department.    A  card 
can  be  taken  out  without  interfermg  with  the  work  ot 
the  bookkeeping  department,  while  at  the  same  time  the 
account  is  in  a  form  to  be  easily  handled.     On  this  ledger 
card  are  the  usual  debit  and  credit  entries  with  a  column 
where  the  balance  is  indicated.     It  shows  the  condition 
of  the  customer's  account  at  a  glance.     Other  items  show 
tlie  terms  on  which  the  goods  were  sold  to  him  and  his 
rating.     A  thh-d  division  of  the  card  will  prominently 
display  in  brief  form  the  data  abstracted  from  all  the 
various  sources  which  may  have  been  used  regarding 
the  man's  character,  capacity  and  capital.     The  briet  is 
revised  or  added  to  as  new  information  comes  m. 

Some  firms  use  differently  colored  cards  so  that  at 
a  .rlance  some  information  of  vital  and  constant  impor- 
tance may  be  conveyed  to  the  credit  man.     For  example, 
the  regular  ledger  cards  are  white,  but  two  other  colors 
are  used  to  indicate  special  data.     A  blue  card  contain- 
ing the  same  data  replaces  the  white  card  in  the  file 
when  for  any  reason  credit  has  been  refused  a  customer. 
This  card  is  never  changed  back  to  a  white  card  again. 
Either  a  white  or  blue  card  may,  however,  be  substituted 
by  a  red  one.     This  is  only  done  when  a  customer  s 
account  is  placed  in  the  hands  of  an  attorney  for  col- 
lection.    The  color  of  the  card  is  never  changed  again 
even  though  a  new  account  be  opened  with  the  former 
delinquent.     It  stands  as  a  perpetual  warning  to  the 
credit  department  that  at  one  time  a  fatal  weakness  was 
displayed  by  the  firm. 

That  there  may  be  as  little  delay  as  possible  m  filling 
new  orders,  many  are  turned  over  to  the  sales  depart- 
ment upon  the  high  rating  given  in  the  mercantile 
agency  books,  and  the  more  detailed  information  is 


31fi 


CREDIT  AND  THE  CREDIT  MAN 


looked  up  as  soon  as  possible.     Inasmuch  as  a  large  per- 
centage of  orders  is  taken  by  traveling  salesmen  several 
months  before  shipment  is  necessary,  the  credit  depart- 
ment has  ample  time  in  which  to  make  a  thorough  inves- 
tigation before  the  date  of  shipment.     To  avoid  the 
expense  of  filling  orders  that  may  be  held  up  by  the 
credit  department,  a  memorandum  of  the  estimated 
amount  of  all  orders  for  future  shipment  is  sent  to  the 
credit  department  just  prior  to  the  filling  of  such  orders. 
The  close  connection  between  the  credit  department 
and  the  other  departments  is  best  shown  in  the  filling 
and  shipping  of  an  order  and  the  collecting  of  payment. 
After  the  order  has  been  passed  by  the  credit  man  it 
goes  to  the  invoice  clerk,  who  makes  four  copies.     Two 
copies  are  sent  to  the  billing  clerk,  who  holds  them  until 
the  goods  are  ready  for  shipment.     The  third  and  fourth 
copies  are  sent  directly  to  the  warehouse.     One  is  re- 
tained by  the  warehouse  as  a  receipt  and  the  other  is 
sent  back  to  the  accounting  department  to  serve  as  a 
source  from  which  to  post  the  ledger.     When  the  goods 
are  shipped,  the  billing  clerk  disposes  of  the  two  copies 
in  his  hands  by  sending  one  to  the  collection  department 
and  the  other  to  the  customer  as  a  bill.     The  one  sent 
to  the  collection  department  is  divided  into  two  parts 
by  a  perforated  line.     The  information  on  the  two 
parts  is  so  arranged  that  one  section  can  be  filed  away 
according  to  its  numerical  order  number  for  future 
reference,  while  the  other  section,  which  contains  infor- 
mation suited  particularly  to  the  collection  department, 
is  filed  away  in  such  manner  that  it  will  make  its  ap- 
l)earance  "automatically"  '  on  the  date  and  day  of  the 

1  According  to  Mr.  Montgomery  Rollins  a  "  tickler  "  is  "  a  iMok  in  which* 
"11  debts  due  to  a  banking  institution  (or  anyone)  are  entered,  together 
with  dates  of  maturity,  so  that  failure  to  present  for  payment  at  the  proj)er 
time  may  not  occur.     It  is  a  reminder." 


CREDIT  PROTECTION 


317 


,l,tinff    It  is  the  "tickler" '  of  the  collection  department. 
JcoUection  methods.-The  policy  of  a  collection 
acpartment  must  be  in  harmony  with  the  credit  depar  - 
n,ent.     This  is  often  brought  about  by  puttmg  the  credit 
,„an  in  charge  of  both.     The  methods  pursued  in  mak- 
ing collections  must  be  as  varied  as  those  pertaming  to 
tl,:  granting  of  credits.    Retail  customers  differ  from 
customers  of   wholesale  houses.     The   "business-like 
uK'thods   practiced  in   the   collection   departments   of 
wholesale  houses  would  not  be  applicable,  as  a  loile  in 
dealing  with  debtors  in  the  retail  trade.     The  latter 
must  be  carried  on  with  a  due  understanding  and  con 
sideration  of  human  nature. 

But  there  is  one  policy  which  is  universally  applicable 
t.)  all  collection  departments.  No  matter  whether  it  is 
i„  the  retail  or  wholesale  trade,  customers  should  be 
trained  to  make,  prompt  payments.  Especially  does  this 
apply  to  the  installment  house  where  the  collection  de- 
partment forms  the  backbone  of  the  system. 

There  may  be  three  or  four  steps  in  the  collection  ot 
a  debt.  The  usual  procedure  is  first  to  send  a  statement 
en  the  day  on  which  the  debt  falls  due.  If  this  does 
not  meet  with  an  acknowledgment,  a  letter  is  generally 
written  asking  for  payment.  This  is  a  critical  point 
in  the  procedure  and  all  the  tact  in  the  possession  of  the 
department  is  needed.  The  object  of  the  letter  is  of 
course  to  bring  about  a  settlement  without  losing  a  cus- 

.  Suppose  the  order  was  shipped  July  1.  and  Ihe  terms  are  thirty  days 

„rt.    This  slip  will  be  Hied  in  the  "tickler"  thirty  days  ahead.     Aocord- 

,    V  on  the  first  of  August  the  attention  of  the  clerk  >n  charge  w.l    be 

..al.;d  to  this  account.     He  then  consults  the  ledger  and  -"ta-ns  whether 

,...  l,ill  has  been  paid  or  not.  If  not.  a  «*«*-'!"VL'""h  hII  for  a 
,..to  .nd  one  is  sent  to  the  customer;  the  other  .s  filed  ahead  again  for  a 
,,.ri«l  of  ten  days.  The  account  is  now  definitely  on  its  way  through  the 
(    Uection  department. 


318 


CREDIT  AND  THE  CREDIT  MAN 


tomer.     The  correspondence  should  at  least  encourage 
customers  to  be  frank  and  open  with  the  house  and  let  it 
know  where  he  stands  regarding  the  account.     Circum- 
stances must  govern  the  procedure  from  now  on,  but  at 
no  time  should  a  firm  depart  from  a  dignified  attitude. 
A  common  practice  is  to  send  the  customer  a  draft  ex- 
pecting him  to  accept  it.     This  was  a  very  efficacious 
method  at  one  time,  but  the  awe  which  the  method  in- 
spired in  the  country  merchant  has  somewhat  disap- 
peared.    When  the  unhonored  draft  is  returned,  some 
collectors  use  the  telegram  to  good  advantage.   A  sharply 
worded  message  expressing  surprise  and  demanding  im- 
mediate settlement  is  sent  to  the  delinquent.     The  chief 
virtue  in  all  of  these  methods  is  that  they  impress  the 
customer  with  the  fact  that  the  creditor  is  actively  vigi- 
lant and  desires  to  do  things  in  a  business-like  way. 

Before  the  final  appeal  to  the  law  is  taken  many 
houses  make  it  a  practice  to  send  the  credit  man  to  the 
debtor  to  seek  by  a  personal  interview  the  true  condition 
of  affairs.  Often  such  visits  prove  of  the  utmost  value 
not  only  to  the  house,  but  to  the  customer.  The  larger 
experience  of  a  broad-minded  credit  man  is  brought  to 
bear  upon  a  situation  that  may  have  proved  to  be  too 
complex  for  the  local  tradesman  and  by  kindly  advice 
and  helpful  suggestions  a  falling  trade  is  put  upon  its 
feet  again. 

If  no  satisfaction  can  be  secured  by  pacific  means,  the 
account  is  put  into  the  hands  of  an  attorney  for  collec- 
tion. It  is  at  this  point  that  the  red  card  supplants  the 
white  card  in  the  ledger  file  and  stands  as  a  "red  flag  of 
M-arning"  to  the  credit  man  whenever  this  account  is 
approached  in  the  future. 

70.  Suspended  accounts. — ^When  accounts  have  as- 
sumed such  a  character  that  their  worth  is  questionable, 


CREDIT  PROTECTION 


fJin 


thev  are  separated  from  the  regular  accounts  and  put  ni 
a  ciass  by  themselves.  They  are  known  as  "suspended 
accounts."  The  name  indicates  their  nature.  They  are 
held  in  suspense  awaiting  developments  that  will  war- 
rant some  definite  disposal  of  them. 

When  an  account  is  given  to  a  lawyer  for  collection 
the  value  of  it  is  diminished  as  an  asset.  Conservative 
hnsiiiess  policy  dictates  that  such  an  account  should  not 
l,e  reckoned  at  its  face  value.  Before  chargmg  the 
account  to  profit  and  loss  it  is  segregated  from  the  good 
accounts  in  order  that  its  character  may  not  be  misun- 
derstood, and  put  into  a  suspense  account  where  an 
approximate  value  is  put  upon  it  until  the  outcome  of 
the  attorney's  action  definitely  decides  its  true  value. 

In  large  firms  suspended  accounts  are  given  a  sepa- 
rate and  special  treatment  by  the  credit  department. 
The  card  system  is  recommended  by  many  as  the  best 
method  for  tabulating  data  in  an  orderly  and  convenient 
manner.  In  conjunction  with  this  the  correspondence  is 
cared  for  by  a  folder  system. 

Not  only  does  it  pay  to  give  adequate  attention  and 
care  to  debtors  who  have  failed  to  meet  their  obligations 
l)ccause  much  more  is  reaUzed  from  them,  but  the  infor- 
mation gained  under  the  pressure  of  the  collection  de- 
partment becomes  a  valuable  guide  in  granting  future 
credit  to  any  such  firm  as  may  again  apply  for  it.  If 
the  credit  man  does  not  sufficiently  investigate  his  bad 
(lcl)ts,  he  will  always  be  in  doubt  as  to  the  real  cause 
of  the  debtor's  failure.  Was  it  an  honorable  failure 
from  which  the  man  emerged  with  an  unstained  char- 
acter, or  was  it  a  failure  due  to  lack  of  moral  stamina? 
The  files  of  the  suspended  accounts  should  disclose  the 

answer. 
71.  Analysis  of  credit  information.— The  supreme 


320 


CRKDIT  AND  THE  CRKDIT  MAN 


test  of  a  credit  department's  efficiency  comes  when  it 
must  analyze  the  information  that  has  been  laid  before 
it.     It  is  then  that  the  credit  man  must  bring  into  play 
all  of  his  natural  ability  and  experience.     The  broader 
his  knoMledge  of  human  nature  and  the  more  constant 
his  contact  with  the  men  in  the  trade,  the  easier  it  will 
be  for  him  to  detect  pitfalls  into  which  untruthfulness, 
carelessness  or  incapacity  might  lead  him.     But  even 
after  he  has  decided  the  character  and  capacity  of  the 
customer  asking  for  credit,  there  is  still  the  necessity 
of  clearly  comprehending  the  financial  statement  which 
he  presents  to  the  credit  man.     The  latter's  knowledge 
of  the  trade  and  its  tricks  will  be  of  special  aid  to  him 
in  this  connection.     He  can  the  more  surely  estimate 
the  merchant's  paying  power  because  he  knows  the  qual- 
ity and  permanency  of  the  demand  and  the  rate  of  tmn- 
over  pertaining  to  this  particular  line  of  goods.     The 
relation  of  the  assets  to  the  liabilities  assumes,  therefore, 
an  imposing  place  in  directing  the  decision  of  the  credit 
man.     In  order  to  analyze  a  statement  critically  with 
this  point  in  view  or  to  examine  a  customer's  books  for 
this  purpose,  the  credit  man  could  bring  to  his  assist- 
ance no  greater  aid  than  a  thorough  knowledge  of  ac- 
counting.    Each  particular  trade  has  its  peculiarities, 
and  a  credit  man  in  sending  out  statements  to  be  filled 
in  by  prtjspective  customers  shows  his  suspicions  by  the 
questions  he  asks.     A  knowledge  of  accounting  enables 
him  to  pick  out  the  weak  and  hidden  places  in  the  report 
when  it  is  filled  out  and  returned.     It  is  a  common  thing 
in  business  circles  to  speak  of  the  exaggerations  and  mis- 
representations presented  in  the  balance  sheet.    Accord- 
ing to  Professor  Bolles,  the  man  unfamiliar  with  the 
science  of  higher  accounting  should  ask  the  following 
questions  when  analyzing  a  statement: 


CREDIT  PROTECTION 


8S1 


(a)  I»  the  capital  Buffident  and  ha«  it  b«en  contributed  in 
cash;  if  not,  what  docs  it  represent? 

(b)  Who  constitute  the  firm,  and  do  the  partners  understand 

the  business? 

(c)  Has  the  stock  been  taken  in  at  a  fair  figure  and  has  due 
allowance  been  made  for  depreciation?  This  is  very  necessary 
to  ascertain  in  large  manufacturing  concerns. 

(d)  What  about  accounts  and  bills  receivable?  Has  due 
allowance  been  made  for  doubtful  credits  and  have  bad  debts  been 
written  off  or  provided  for? 

(e)  The  liabilities  of  the  firm  should  be  carefully  examined; 
are  they  heavy ;  are  they  continuously  large ;  to  whom  and  what 
for? 

To  this  list,  Mr.  Thome,  in  his  paper  on  "What  the 
Statement  Means  to  a  Credit  Man,"  would  add: 

(f)  Is  the  buying  legitimate  in  amount? 

(g)  Do  they  carry  other  lines  beside  their  principal  business? 
If  so,  where  does  the  capital  come  from? 

If  the  credit  man  can  induce  the  customer  to  give  him 
such  a  detailed  statement  of  his  financial  affairs,  he  has 
something  tangible  to  work  upon.    He  asks  what  prop- 
erty has  the  applicant  which  is  unincumbered  and  in 
good  shape;  what  is  the  cost  of  his  merchandise;  how 
much  has  he  owing  him  in  outstanding  accounts;  how 
much  cash  has  he  on  hand  and  in  the  bank?    What  is  a 
conservative  estimate  of  his  plant  and  machinery?    The 
sum  of  all  of  these  items  will  give  him  his  active  busi- 
ness assets.     Then  the  credit  man  examines  the  other 
side  of  the  statement  and  searches  it  with  the  following 
questions  in  mind:    How  much  does  he  owe  for  mer- 
chandise?   What  is  the  amount  of  borrowed  money, 
either  from  the  bank  or  from  mdividuals?    What  is  the 
c— m— 21 


tm  CREDIT  AND  THE  CREDIT  MAN 

amount  and  nature  of  other  obligations?    When  these 
items  are  added  together  the  liabilities  are  exposed. 

In  order  to  determine  the  basis  on  which  to  lend  to 
this  customer  the  credit  man  must  deduct  the  sum  of 
the  liabilities  from  the  sum  of  the  assets.  The  surplus 
represents  his  active  capital.  It  is  very  essential  to  make 
a  careful  comparison  of  a  firm's  debts  or  liabilities  with 
its  assets. 

Mr.  Marshall,  president  of  the  New  York  Credit 
Men's  Association,  in  his  excellent  paper  on  "The 
Credit  Man"  gives  the  following  illustration  in  whidi 
are  compared  the  statements  of  three  business  men 
having  the  same  capital  in  their  businesses: 

Assets.                           A                B  C 

Machinery ^^1^,000 

Merchandise   $10,000         $20,000  10,000 

A«»"n*s    5,000           15,000  10,000 

^^^   g>000             1,000  10,000 

$20,000         $86,000  $40,000 

^^**»"^*^«« 16.000  20,000 

^mtal $20,000         $20,0..         $20,000 

Apparently  these  three  men  are  in  the  same  financial 
position.  Each  has  $20,000  capital.  It  is  only  when 
the  nature  of  the  assets  is  examined  that  the  true  posi- 
tion of  each  is  revealed.  A,  who  has  no  liabilities,  but 
has  $5,000  in  the  bank,  is  unquestionably  much  stronger 
than  either  of  the  other  two  in  so  far  as  this  one  item  is 
concerned.  When  in  comparing  the  accounts,  it  was 
discovered  that  A's  accounts  could  easily  be  collected 
when  due,  but  that  B's  and  C's  contained  a  large  pro- 
portion of  bad  debts,  many  of  them  having  been  carried 
long  beyond  the  period  of  "reasonable  doubt."  the 


CREDIT  PROTECTION 


3S3 


credit  man  would  again  decide  that  A's  statement  is  the 
stronger  one  on  which  to  give  credit. 

The  same  test  might  be  applied  to  the  item  of  mer- 
ehaiulise.  If  A  had  on  hand  a  commodity  for  which 
there  is  a  constant  and  large  demand,  that  is,  goods  which 
ini^'lit  easily  be  turned  into  cash  on  short  notice  and  at  a 
price  very  dose  to  the  app^'aisal  in  the  statement,  there 
would  be  no  need  to  hesitate  on  the  part  of  the  credit 
(le[)urtment  in  extending  a  liberal  credit  to  this  man. 
On  the  other  hand,  if  B's  merchandise  statement  is  a 
valuation  upon  a  novelty  of  doubtful  demand  or  if  it 
includes  a  good  deal  of  old  stock,  the  $20,000  would 
need  to  be  much  reduced  before  a  reasonable  credit  basis 
is  reached.  For  it  is  quite  evident  that  the  cash  on  hand 
would  not  go  far  ill  liquidating  the  liabilities  while  the 
nature  of  the  accounts  would  not  warrant  their  accept- 
ance at  the  stated  value.  Therefore,  to  meet  the  liabil- 
ities on  short  notice,  at  least  part  of  the  merchandise 
must  be  disposed  of.  B.  is  in  a  better  condition  than  C. 
He  is  at  least  solvent. 

With  C,  the  relation  of  the  liabilities  to  the  assets  and 
the  nature  of  these  items  discloses  a  very  unsafe  basis 
for  the  giving  of  credit.  He  has  $20,000  of  liabilities 
that  must  be  naid.  He  cannot  pay  it  out  of  real  es- 
tate unless  he  sells  it.  He  would  be  compelled  to  dis- 
mantle his  plant  and  hence  disrupt  the  whole  business 
should  he  attempt  to  realize  on  his  machinery.  If  the 
general  experience  is  to  be  relied  upon  he  could  not  col- 
lect all  of  the  outstanding  accounts.  But  even  if  the 
machinery,  merchandise,  real  estate,  and  accounts  were 
disposed  of  at  a  forced  sale,  the  amount  they  would 
bring  in  would  be  far  below  the  book  value  as  repre- 
sented in  the  statement.  In  reality,  C  is  practically 
bankrupt. 


324 


CKKDIT   AND  THE  CRKDIT   MAN 


Therefore  it  is  seen  that  although  these  men  may  be 
rated  the  same,  it  is  the  credit  man's  duty  to  ascertain  the 
nature  of  the  capital.  As  a  general  proposition,  says 
^■Ir.  Marshall,  a  man  whose  liabilities  exceed  50  per  cent 
of  his  assets  is  not  in  a  healthy  business  condition. 

72.  Credit  associations  in  Canada. — The  enormous  ex- 
pansion of  Canada's  domestic  trade  in  recent  years  has 
quite  naturally  given  rise  to  the  formation  of  various 
credit  associations.  The  lessons  learned  in  the  United 
States  have  been  of  the  utmost  value  to  Canada.  The 
scope  and  method  of  Canadian  credit  associations  are 
based  upon  the  practice  and  precedents  of  those  whidi 
have  worked  to  best  adva:\tage  across  the  border.  The 
most  important  organization  in  Canada  is  the  Canadian 
Credit  Glen's  Association,  which  was  organized  in  Win- 
nipeg in  1909.  This  association  has  now  passed  the  ex- 
perimental stage,  and  is  firmly  established  with  seven  dif- 
ferent offices  in  full  operation  extending  from  St.  John, 
N.  B.,  to  Vancouver,  B.  C.  The  Toronto  branch  was 
organized  in  1911,  eighty-nine  members  being  on  the  roll 
at  the  time  the  office  was  opened.  Since  that  time 
twenty-eight  of  these  members  have  been  transferred  to 
eastern  offices,  which  were  opened  later,  leaving  sixty- 
one  of  the  original  members  with  the  Toronto  branch. 
The  membership  of  the  Toronto  branch  has  steadily 
grown :  and  at  the  end  of  1918  was  expected  to  reach 
two  hundred  and  fifty. 

This  association  is  composed  exclusively  of  monufac- 
turers  and  jobbers,  who  have  found  that  it  is  to  their 
mutual  advantage  to  co-operate  with  each  other  to  sup- 
port deserving  and  thoroughly  honest  retailers.  At  the 
same  time  they  have  found  that  very  considerable  ad- 
vantages have  Wn  gained  by  eliminating  weak  and 
fraudulent  accounts.     It  was  the  practice,  formerly, 


CREDH'   PROTECTION 

where  a  wholesaler  found  himself  forced  to  carry  a  bad 
airount  to  "unload"  it  at  the  first  opportunity  on  some 
cmmetitor.  At  the  present  time  the  wholesalers  are 
leiulinK  one  another  mutual  aid  and  support  by  freely 
excluuiKing  information  concerning  their  accounts  and 
customers.  Thus,  through  the  medium  of  credit  associa- 
tions, ur.  esirable  accounts  are  being  eliminated  while 
those  wf  honest  and  efficient  customers  are  protected. 

The  Canadian  credit  associations  are  engaged  in  nu- 
merous activities  designed  to  improve  the  general  condi- 
tions of  trade.    For  instance,  they  are  educating  the  re- 
tailer to  carry  more  and  better  fire  insurance.    They  are 
teaehing  retailers,  too,  to  furnish  more  complete  financial 
statements  to  their  supply  houses;  to  prosecute  cases 
of  fraudulent  failure;   to  unite  in  carrying  deserving 
debtors,  who  through  some  misfortune  have  got  into  deep 
water;   and  to  secure  the  passing  of  better  commercial 
laws  that  will  be  so  worded  that  the  spirit  and  intent  of 
the  legislation  may  not  be  evaded  by  fraudulent  dealers. 
The  credit  associations  are  not  working  in  opposition 
to  anv  class  of  trade.    They  are,  for  example,  m  abso- 
lute harmony  with  such  organizations  as  the  Retail  Mer- 
dmnts'  Association,  the  Canadian  Manufacturers'  Asso- 
ciation, the  Wholesale  Grocers'  Guild,  and  others.    In 
the  case  of  the  Canadian  Credit  Men's  Association  each 
member,  on  joining  the  association,  becomes  the  owuct  of 
one  share  of  the  capital  stock  of  the  organization.    This 
association  is  a  limited  liability  company  with  a  Domin- 
ion charter.    All  members  thus  have  an  equal  voice  m 
tiie  operation  of  the  association.    Each  member  signs  a 
contract  agreeing  to  exchange,  through  the  medium  of 
the  association's  offices,  his  ledger  information  on  any 
account  required.    In  return  for  furnishing  his  figures  on 
anv  customer,  he  receives  the  figures  of  from  ten  to  per- 


326 


CREDIT   AND  THE   CREDIT  MAN 


haps  one  hundred  other  members  who  may  be  "elling  to 
the  same  customer.  In  this  way,  a  fairl,  a  ■  ..ate  com- 
mercial history  of  a  retail  dealer  is  secured.  In  many 
cases  such  knowledge  has  prevented  fraudulent  accounts 
from  being  started,  and  has  thus  safeguarded  members 
from  considerable  losses. 

Assignments  are  handled  by  the  association  as  effi- 
ciently  and  economically  as  possible.  A\'hen  a  debtor  is 
in  deep  water  the  supply  houses  get  together  with  him, 
and  arrive  at  some  arrangement  that  is  fair  and  equitable 
to  all.  Many  honest  retailers  have  been  carried  over 
a  period  of  depression,  and  kept  on  their  feet,  through 
the  activities  of  the  association,  where  otherwise  they 
would  have  been  obliged  to  assign,  with  a  definite  loss 
to  themselves  and  to  the  houses  that  had  furnished  them 
credit. 

By  way  of  illustration  two  actual  reports  issued  by 
the  association  are  given.  The  longer  report  refers  to  a 
dealer  who  has  no  credit  rating.  He  ordered  $1,800 
worth  of  goods  in  Montreal,  and  the  wholesaler  after 
receiving  this  report  filled  his  order.  The  smaller  report 
refers  to  a  dealer  who  ordered  $150  worth  of  goods  in 
Toronto,  but  the  order  was  cancelled  after  this  trade 
report  was  received.  Later,  two  other  firms,  not  mem- 
bers of  the  association,  shipped  him  goods,  one  for  $40 
and  the  other  for  $100.  Shortly  after,  the  dealer  as- 
signed and  none  of  the  .^editors  has  received  a  dollar; 
so  that  this  one  report  saved  $150  for  one  wholesale 
firm,  and  might  have  saved  $140  to  the  other  two  firms 
had  they  been  members  of  the  association,  as  they  now 
are. 

78.  Banhruptcy  procedure  in  Canada.— The  over- 
hauling of  the  bankruptcy  laws  in  the  several  provinces 
of  Canada  is  becoming  more  and  more  urgently  neces- 


TRADE  CLEARING  REPORT  nttPHo-t.  -*.«  \  g« 


ON 


FAnmrfS,- 


W  Front  St.  West 

i      TORONTO,  ONT. 


FORMER 
CLEARINGS 


Na  OF  HOUU 
REPORTINa 


OVUDUE 


Buxinem 


Omng 


B.  &S. 

H.  ('.  &  F. 

Harness 

Teas 

P.&G. 

Gloves 

Wall  paper 

Sundries 


Overdue 


407 

407 

0 

0 

0 

0 

0 

0 

19 

0 

9 

9 

0 

0 

40 

40 

475 

456 

Highest        How  l^ng      banner  of  Paying 


Credit 


600 
533 
77 
50 
19 
145 
52 

350 


Sold 


Years 

Years 

5  years 

5  years 

1910 

1908 

Once 


Very  slow,  a/c  closed 
Placed  for  collection 
Slow 
Fair 

Slow  pay 
Slow 

(Very  slow,  collected 
by  attorney) 


TRADE  CLEARING  REPORT 


TELEPHONE*  MAIN 


15042 


S043 


ON 

3U, 

FORMER 
aEARINGS 

OAfE 

NO.  OF  HOU«E 
REPORTING 

OWINQ 

OVERDUE 

,W  Front  St.  Wert 

TOBO.VTO,   ONT. 

Busineu 


B.  &S. 
Rubber 

Shoes 
Rubbers 
B.  &S. 
B.  &S. 
B.  &  S. 
B.  &S. 
Gloves 
Sundries 
B.  &  S. 
B.  &S. 


B.  &S. 
n.  &S. 


Owing 


38 
31JM 

80 

"isi 

390 
150 


112 

340 

4700 


12 
35 

9110 


Overdue 


HigkeH 
CredU 


2300 


2300 


297 
3122 

600 
200 
131 
390 
150 
468 
44 
112 
580 
7000 


597 
200 


How  Long 
Sold 


Manner  of  Paying 


March  1911  Takes  Discount 
Nearly  2  yrs.  Takes    Discount    and 

accepts  drafts 
1910— drafU  full  time— Satisfactory 
1st  order        Not  delivered 
Ist  time 

Just  shipped  Sept.  15  asks  cash  disc. 
Just  sold 

Feb.  1906       Net  terms— prompt 
1905  Fair 

7  years  Discount 

1  year  Good 
10  years         Fair 

(Reducing  account  itoadily     Quite 

■atirfactory) 
Years  Good 

2  years  Discount 


327 


328 


CREDIT  AND  THE   CREDIT   MAN 


sary;  it  is  altogether  likely  that  any  party  leader  who 
will  bring  forward  a  definite  policy  of  improvement  in 
this  regard  will  be  assured  the  solid  support  of  the  busi- 
ness community  in  his  province  without  regard  to  party 
affiliations. 

Montreal  is  the  principal  center  of  Canadian  business 
and  finance,  and  hence  the  need  of  reform  is  more  keenly 
felt  in  the  Province  of  Quebec  than  elsewhere.     The 
procedure  for  the  administration  of  bankrupts'  estates 
in  Quebec  is  faulty  in  the  extreme;  but,  even  so,  it  is 
hardly  inferior  to  that  in  vogue  in  other  provinces  of  the 
Dominion.    The  present  state  of  the  bankruptcy  laws 
compels  creditors  to  accept  almost  any  kind  of  a  volun- 
tary settlement  rather  than  allow  the  estate  of  the  in- 
solvent to  pass  into  the  hands  of  an  administrator.    Thus, 
the  visible  volume  of  insolvency  is  greatly  decreased,  al- 
though the  real  losses  resulting  from  inability  to  pay 
debts  are  not  reduced,  but  are  merely  concealed  by  being 
kept  private.    The  insolvency  totals  are  thus  kept  down, 
while  the  private  and  unreported  losses  may  continue  to 
rise  without  anybody  perceiving  them.    The  net  advan- 
tage is  distinctly  questionable.    In  cases  where  the  great 
bulk  of  the  insolvent  debtor's  liabilities  are  to  large  cred- 
itors it  is  becoming  a  rare  thing  for  the  estate  to  be 
placed  in  bankruptcy;  the  large  creditors  stand  to  lose 
less  by  taking  over  the  business  and  settling  with  the 
smaller  creditors  in  full. 

The  powers  of  liquidators  may  not  be  very  extensive 
in  the  direction  of  expediting  an  efficient  settlement  of 
the  estate,  but  they  are  very  large  in  the  direction  of 
delaying  and  obstnicting  that  settlement.  This  holds 
especially  true  of  ^lontreal  and  its  tributary  territor}'. 
In  that  city  many  liquidations  have  been  drawn  out  to  an 
inordinate  length,  with  enormous  loss  to  the  creditors 


CREDIT   PROTECTION 


329 


through  the  tying  up  of  the  money  to  which  they  are 
rightfuUy  entitled.  The  temptation  to  the  hquidator  is 
very  great.  Every  day's  delay  is  a  source  of  direct 
profit  to  him;  and  there  is  no  machinery  by  which  he  can 
be  forced  into  expeditious  action  except  in  the  case  of 
entire  unanimity  among  the  creditors.  A  single  dissent- 
ing creditor  can  stave  off  the  final  settlement  as  long  as 
the  liquidator  desires.  No  business  man  doubts  for  a 
moment  that  dissenting  creditors  are  not  infrequently 
acting  in  collusion  with  the  liquidator. 

The  men  who  are  selected  for  the  responsible  (and 
profitable)  task  of  liquidating  a  large  insolvent  estate 
do  not  always  enjoy  the  confidence  of  the  business  com- 
munity. Some  of  them  are  admirable  officials,  and  very 
useful  service  has  been  rendered  by  the  trust  companies 
in  this  regard.  But  trust  companies  are  seldom  em- 
ployed except  when  there  is  a  bond  issue  which  has  to 
be  safeguarded  in  the  winding-up  proceedings,  and  it  is 
undeniable  that  the  results  in  cases  where  the  creditors 
themselves  agree  upon  the  liquidator  are  far  better  than 
in  cases  where  the  court  makes  an  appointment  on  its 

own  initiative. 

The  reason  why,  on  the  whole,  there  has  been  such 
general  apathy  throughout  Canada  on  the  question  is 
that  trade  has  been  exceptionally  good  during  recent 
Thus  the  evils  of  a  bad  bankruptcy  system  have 


years. 


not  pressed  so  heavily  on  the  community  as  would  other- 
wise have  been  the  case.  But  trade  will  not  always  and 
perpetually  remain  good  It  is  important  that  legislat- 
ing bodies  throughout  Canada  should  be  made  to  realize 
the  dangers  of  the  present  bankruptcy  procedure,  and  the 
urgent  need  of  unproved  and  uniform  bankruptcy  laws 
throughout  the  Dominion. 
74.  Some  evils  of  Canadian  bankruptcy  laws.— The 


S30 


CREDIT  AND  THE  CREDIT   MAN 


chief,  and  almost  the  sole,  cause  of  the  unhealthy  condi- 
tion of  insolvency  procedure  in  Canada,  is  undoubtedly 
the  carelessness  of  creditors.  It  is  quite  possible;  even 
under  existing  laws  and  methods,  for  the  creditors  of  an 
insolvent  estate  to  protect  themselves  against  malprac- 
tices of  liquidators.  But  the  process  of  self -protection 
requires  a  considerable  amount  of  time  and  care;  and 
the  prevalent  disposition  of  the  Canadian  merchant,  pro- 
fessional man  or  other  creditor,  when  his  debtor  seeks 
refuge  in  bankruptcy,  is  to  write  off  the  losses  and  at- 
tempt to  make  them  up  elsewhere. 

As  a  result  of  the  practice  of  extending  long-time 
credits  to  plausible  borrowers  dividends  out  of  bankrupt 
estates  are  exceptionally  low.  An  experienced  liquidator 
has  estimated  that  10  per  cent  is  a  usual  figure  for  in- 
solvent estates  to  pay,  and  20  per  cent  is  felt  to  be  a 
high  figure.  A  man  with  a  claim  for  $100  will  go  to  a 
lot  of  trouble  to  collect  that  claim  in  full  from  a  delin- 
quent but  solvent  debtor,  but  will  give  himself  little 
concern  as  to  whether  an  insolvent  estate  pays  him  $20 
or  $15.  By  that  carelessness,  aided  by  certain  laxities 
in  law  and  practice,  there  is  provided  a  fertile  field  for 
the  operations  of  unscrupulous  liquidators. 

The  law  in  the  Province  of  Quebec,  for  example,  as- 
sumes that  the  creditors  in  a  body,  in  the  larger  matters 
—such  as  the  choice  of  the  liquidator,  the  policy  in  regard 
to  carrying  on  the  business,  etc.— will  look  out  for  their 
own  interests;  and  that  in  matters  of  detail  the  inspectors 
whom  they  appoint  to  watch  the  operations  of  the  liqui- 
dator, and  who  are  usually  important  creditors,  will  safe- 
guard the  interests  of  the  whole  body.  In  practice  the 
assumption  is  never  home  out;  the  liquidator  is  left  with 
an  extremely  free  hand.  Inspectors,  as  a  rule,  are  lack- 
ing in  the  sense  of  trusteeship;  they  become  reconciled 


CREDIT   PROTECTION 


331 


to  their  own  losses,  and  see  no  reason  why  anybody  else 
should  expect  them  to  give  up  their  time  to  the  gra- 
tuitous task  of  insuring  that  every  possible  doUar  is  real- 
ized from  the  estate.    They  are  supposed  to  keep  a  check 
upon  the  liquidator;  but  if  they  faU  to  do  so,  there  is  no 
check  upon  them— no  publicity  for  their  work,  beyond 
the  right  of  other  creditors  or  any  citizen  to  inspect  the 
accounts  at  the  liquidator's  office.   This  is  a  right  which  is 
rarely     forced;  and  there  is  no  prospect  of  criticism  at  a 
meeting  of  the  creditors  because  the  creditors  have  prac- 
tically no  knowledge  of  the  condition  of  the  estate,  at  the 
time  of  msolvency,  on  which  to  base  criticism.    It  has 
been  proposed,  and  there  seems  much  force  in  the  sug- 
gestion, that  liquidators  should  be  required  to  fUe  in  court 
a  detailed  statement  of  all  assets  at  book  value  at  the 
time  of  takinpr  over  the  estate,  a  process  which  would 
impose  upon  them  some  obligation  of  explaining  the 
disposition  of  such  assets.  •  .  j- 

This  state  of  affairs  has  given  rise  to  a  class  of  mdi- 
viduals  who  take  advantage  of  the  business  ignorance 
of  the  general  creditor.    Their  emissaries  are  in  constant 
communication  with  the  minor  officials  of  the  courts  and 
are  posted,  in  advance  of  publication^  concemuig  appli- 
cations for  winding-up  orders.    In  cases  where  there  is 
a  preponderance  of  large  trade  accounts  they  do  not  con- 
cern themselves;  but  where  the  creditors  are  the  general 
public  they  secure  as  many  powers  of  attorney  as  possi- 
ble, and  turn  up  at  the  meeting  with  a  volume  of  sup- 
port which  easily  entitles  them  to  selection  for  the  post 
of  liquidator.    The  sole  source  of  their  strength  is  this 
advance  information  and  ability  to  round  up  powers  of 
attorney,  which  exclude  any  ordinary  conscientious  au- 
ditor or  accountant  from  securing  the  appointment. 
The  law  requires  the  personal  presence  of  the  inspec- 


332 


CREDIT  AND  THE   CREDIT   MAN 


tors  at  various  stages  of  the  more  important  negotiations, 
but  it  is  notoriously  ignored,  and  nobody,  least  of  all  the 
inspectors,  makes  any  trouble.  The  law  requires  that 
the  liquidator  shall  bank  all  sums  belonging  to  the  estate 
as  soon  as  the  amount  in  his  hands  is  one  hundred  dol- 
lars; but  this  is  equally  neglected,  while  often  the  bank- 
book is  not  even  produced  at  meetings,  although  the  min- 
utes have  to  declare  thai  it  has  been  so  produced. 

The  task  of  bettering  these  conditions  lies  with  the 
creditor.  It  is  his  money  which  is  being  wasted.  So  long 
as  creditors  are  individually  and  collectively  careless 
about  it  they  will,  individually  and  collectively,  suffer 
loss.  Unfortunately,  by  this  carelessness,  the  creditor 
injures  foreign  creditors,  who  have  to  rely  to  some  extent 
on  Canadian  creditors  to  protect  the  interests  of  the 
whole  estate.  The  credit  associations  which  are  spring- 
ing up  in  Canada  are  doing  a  highly  necessary  work  in 
connection  with  the  liquidation  of  estates;  and  should 
receive  the  support  of  every  Canadian  business  man. 

75.  Liquidation  in  England.— As  has  been  said,  the 
failure  of  the  liquidation  laws  of  Quebec  is  typical  of 
those  in  the  several  provinces.  The  whole  law  of  bank- 
ruptcy in  the  Canadian  provinces  need*  revision  and  uni- 
fication. In  bringing  this  about  much  can  be  learned 
from  England.  The  striking  characteristics  of  the  in- 
solvency procedure  of  England  is  the  official  part  taken 
in  the  proceedings  by  the  Board  of  Trade  which  gives  to 
the  representatives  of  the  whole  commercial  community 
a  share  of  the  responsibility  for  the  effective  working  of 
the  Bankruptcy  Act  and  the  safeguarding  of  the  inter- 
ests of  honest  debtors  and  creditors.  In  Canada,  as  al- 
ready explained,  the  general  practice  is  to  treat  bank- 
ruptcy proceedings  too  much  as  if  they  were  purely  a 
matter  between  the  estate  and  the  creditors  alone,  and 


CREDIT   PROTECTION 


SSS 


any  steps  indorsed  by  a  majority  of  the  creditors  or 
Sr  representatives  should  be  accepted  without  further 

%'he  English  system  is  superior  to  that  in  vogue  in 
Quebec  and  other  Canadian  provinces,  in  P«>vidmg  a 
permanent  public  official  closely  associated  with  the 
Cd  of  Trade.    He  has  the  title  of  Official  Receiver, 
ami  automatically  becomes  provisional  liquidator  or 
trustee  upon  the  issuance  of  a  winding-up  order  or  the 
filing  of  a  petition  in  bankruptcy.    A  particularly  inter- 
esting feature  of  his  duties  is  that  in  his  prehminary  re- 
port he  shall  declare  "whether,  in  his  opmion,  further 
inquiry  is  desirable  as  to  any  matter  relating  to  the  pro- 
motion, formation  or  failure  of  the  company,  or  the  con- 
duct of  the  business  thereof."  and  may  further  report 
"whether,  in  his  opinion,  any  fraud  has  been  committed 
in  the  promotion  or  formation  of  the  company,  or  by  any 
director  or  officer  of  the  company,  in  relation  to  the  a)m- 
panv  since  the  formation  thereof."    The  public  official 
Lay  be  superseded  by  an  order  of  the  court,  if  the  cred- 
itors  and  shareholders  apply  for  the  appointment  of  a 
special  liquidator.    The  result  is  to  afford  the  same  free- 
dom for  the  selection  of  any  specially  competent  person 
to  be  liquidator  as  exists  in  the  Canadian  provinces,  with 
the  very  valuable  proviso  that  the  whole  business  of  the 
insolvent  must  first  pass  under  the  eye  of  an  expenen<^d 
and  impartial  official  responsible  directly  to  the  court  and 

the  Board  of  Trade. 

The  Board  of  Trade  again  enters  upon  the  scene  when 
it  comes  to  auditing  the  accomits  of  the  liquidator 
(whether  special  or  official  receiver),  a  service  which  it 
must  perform  twice  a  year.  There  is  absolutely  no  pro- 
vision for  official  audit  of  liquidators'  accounts  corre- 
sponding to  this,  in  most  of  the  Canadian  provmces- 


334 


CREDIT   AND  THE   CREDIT  MAN 


Ontario  being  a  striking  exception.  The  current  as- 
sumption in  Canada  is  that  if  the  inspectors  appointed 
by  the  creditors  are  satisfied  with  the  accounts,  nobody 
else  has  a  word  to  say. 

An  excellent  feature  of  the  English  Act  is  the  fur- 
nishing—along with  the  first  summary  of  the  affairs 
of  a  debtor— of  a  statement  "showing  thereon  in  red  ink 
the  amount  realized  and  explaining  the  cause  of  the  non- 
realization  of  such  assets  as  may  be  unrealized."    The 
first  purpose  of  the  English  Act  seems  to  be  the  ob- 
taining of  a  clear  statement  of  the  affairs  of  the  msolvent 
business,  with  a  view  not  only  to  the  satisfaction  of  cred- 
itors, but  also  to  the  preservation  of  good  business  moral- 
ity and  the  punishment  of  wrongdoing.    The  ideal  is 
not  in  evidence  in  Canadian  bankruptcy  practice.    Cred- 
itors in  Canada  have  a  very  limited  interest  in  the  pun- 
ishment of  wrongdoing  or  in  the  preservation  of  a  high 
level  of  business  morality.    The  business  community  cer- 
tainly has  much  to  learn  from  English  precedent  and 
practice. 


PART  III:    TRAFFIC 

CHAPTER   I 

CANADIAN    TRANSPORTATION 

1.  Early  waterways.— In  the  beginnings  of  industry 
and  commerce,  waterways  are  all-important.    In  a  new 
country,  such  as  Canada,  one  finds  in  the  history  of  its 
settlement  that  influence  of  waterways  which  on  account 
of  the  lapse  of  time  is  more  masked  in  older  lands.    In 
Nova  Scotia,  the  extensive  coast  line  and  the  numerous 
rivers  determined  the  settlement.    In  Nova  Scotia,  as 
in  England,  it  is  difficult  to  find  any  point  more  than 
forty  miles  from  the  sea.    This  made  the  sea  an  impor- 
tant element  both  in  the  settlement  and  in  the  trade  of 
Nova  Scotia.    In  New  Brunswick,  the  coast  lines  of  the 
Bay  of  Fundy,  the  Bay  Chaleur  and  the  Gulf  of  St. 
Lawrence,  and  the  course  of  the  river  St.  John  co-oper- 
ated in  determining  where  settlement  should  be.    As 
late  as  the  middle  of  the  nineteenth  century.  New  Bruns- 
wick was  divided  into  long  lines  of  settlement  along  the 
watercourses  with  tracts  of  wilderness  between,  which 
were  traversed  at  rare  intervals  by  roads  leading  from 
one  line  of  settlement  to  another.    It  was  natural  that 
lumbering  and  its  ancillary  industries  should  first  attract 

attention. 

In  the  colonies  of  Upper  and  Lower  Canada,  the  St. 
Lawrence  and  the  Great  Lakes  were  from  an  early 
(late  an  important  factor  in  settlement.     To-day  the 

335 


336 


TRAFFIC 


white-walled  villages  of  Quebec  which  line  the  St.  Law- 
rence, in  almost  continuous  formation,  while  in  part 
due  to  the  French-Canadian  system  of  subdivision  of 
property,  are  also  a  reminder  of  the  time  when  the  river 
was  the  only  highway.  As  Parkman  said,  "One  could 
have  seen  nearly  every  house  in  Canada  by  paddling  a 
canoe  up  the  St.  Lawrence  and  the  Richelieu." 

The  activity  of  the  fur  trader  and  the  zeal  of  the 
missionary  opened  up  the  route  to  the  Upper  Lakes, 
by  way  of  the  Ottawa  River,  Lake  Nipissing  and  Geor- 
gian Bay,  which  was  itself  an  old  warpath  route  of  the 
Iroquois.  The  direction  of  French  settlement  and 
trade  in.  Canada  was  fashiotied  by  the  location  of  the 
Ottawa  and  of  the  St.  Lawrence. 

With  the  settlement  of  the  United  Empire  Loyalists 
in  Upper  Canada,  the  St.  Lawrence  and  Lake  Ontario 
obtained  an  added  importance.  Gradually  settlement 
filled  in  the  shadowy  outlines  betwe-'n  Kingston  and 
Lake  St.  Clair.  The  trade  importance  of  the  lake  and 
river  route  was  early  recognized  and  plans  for  the  con- 
struction of  canals  around  the  impeded  sections  of  the 
St.  Lawrence  were  developed.  Merritt  saw  that  the 
construction  of  the  Welland  Canal  would  make  the  route 
from  Lake  Ontario  to  Lake  Huron  one.  The  Lachine 
Canal,  the  other  St.  Lawrence  Canals,  the  Ottawa 
Canals,  the  Rideau  Canals  all  bear  on  the  position 
which  was  taken  by  Colonel  By  in  1820  when  he 
stated  that  the  construction  of  an  improved  waterway 
from  the  Upper  Lakes  by  way  of  the  St.  Lawrence  to 
the  sea  would  attract  the  growing  trade  of  the  western 
territory  of  the  United  States  to  a  Canadian  route, 
thereby  assisting  in  building  up  the  Canadian  towns 
along  that  route  and  increasing  the  shipping  and  ex- 
port trade  of  Canada. 


CANADIAN   TRANSPORTATION 


887 


2.  Improved  h$ghrvayg.—W\tt\c  the  waterways  facili- 
tated settlement  and  permitted  limibering  to  be  carried 
on,  the  development  of  agriculture  was  dependent  upon 
improved  roads.  Roads  were  necessary  if  the  country 
was  to  have  width  instead  of  mere  length.  Roads  were 
necessary  if  there  was  to  be  any  adequate  organization 
of  government.  One  of  the  first  acts  of  the  first  Parlia- 
ment of  Upper  Canada  was  concerned  with  highways. 
Soon  the  policy  of  constructing  "Grand  Trunk"  roads 
was  undertaken.  In  Upper  Cai.ada,  Yonge  Street 
leading  from  Toronto  to  Lake  Simcoe,  the  Dundas 
Road  and  the  Talbot  Road  were  undertaken.  A  simi- 
lar policy  of  constructing  crrand  Trunk  roads  was  un- 
dertaken in  the  maritime  p»*ovinces.  By  1885,  New 
Brunswick  had  roads  radiating  from  St.  John  to  Mira- 
michi,  St.  Andrews  and  Fredericton.  In  Lower  Canada 
roads  were  constructed  to  connect  with  the  United  States 
frontier. 

The  improved  highways  played  their  part  in  the  de- 
velopment of  trade.  With  the  opening  up  of  Yonge 
Street,  the  North  West  Fur  Company  diverted  its  car- 
goes from  the  Ottawa  to  the  St.  Lawrence,  Lake  On- 
tario, and  this  new  highway.  The  importance  of  this 
early  stage  in  the  transit  trade  across  Canada  is  seen 
in  the  fact  that  British  goods  which  thus  found  their 
way  to  Mackinaw  were  thence  distributed  as  far  south 
as  the  Spanish  settlements  at  the  mouth  of  the  Missis- 
sippi. 

While  the  construction  of  plank  roads  in  the  County 
of  York  in  Upper  Canada  increased  the  values  of  the 
lands  located  along  them  by  50  per  cent,  the  disadvan- 
tages of  the  existing  system  of  transportation  were  seen 
in  the  prices  of  agricultural  commodities.  Near  St. 
Thomas,  at  one  time,  eighteen  bushels  of  wheat  were 

C— m— 22 


SS8 


TRAFFIC 


exchanged  for  a  barrel  of  salt,  while  one  bushel  of  wheat 
was  given  for  a  yard  of  cotton.  The  dependence  of 
Montreal  on  water  communication  and  winter  roads  was 
such  that  as  late  as  18A1  the  cost  of  food  and  fuel 
doubled  while  the  ice  was  forming  on  the  river.  The 
movement  of  freight  was  slow  and  expensive.  From 
the  Townships  of  Innisfil  and  Vespra,  it  cost  7id  per 
bushel  to  convey  wheat  to  Lake  Ontario.  From  Lt- 
prairie  to  St.  Johns,  a  distance  of  fourteen  miles,  it 
took  a  day  to  haul  three  barrels  of  ashes  in  a  cart  drawn 
by  two  horses.  Stage-coach  movement  had  equal  draw- 
backs. Between  Montreal  and  St.  Hyacinthe,  a  dis- 
tance of  thirty  miles,  it  took  a  stage-coach  twelve  to  fif- 
teen hours  in  the  fall  and  spring. 

8.  The  Canadian  railway  system. — In  Canada,  as  in 
the  United  States,  it  was  soon  felt  that  waterways, 
whether  natural  or  artificial,  and  highways  were  in- 
adequate for  the  rapid  development  of  settlement  ai^ 
trade.  The  activity  of  railway  construction  in  the 
United  States  was  a  stimulus  to  railway  construction  in 
Canada;  for  Canada  feared  that  the  development  it 
had  hoped  to  obtain  through  the  improvement  of  the 
lake  and  St.  Lawrence  route  would  be  lost  if  railways 
were  not  constructed  in  Canada  as  well.  As  early  as 
1828  railway  construction  was  discussed  in  New  Bruns- 
wick. The  Champlain  and  St.  Lawrence,  a  short  por- 
tage line  of  sixteen  miles  in  length,  which  was  opened 
in  1886,  was  concerned  simply  with  facilitating  the  north 
and  south  movement  of  traffic  to  and  from  Montreal. 
But  its  greater  significance  consists  in  the  fact  that  it 
was  the  beginning  of  that  great  Canadian  railway  de- 
velopment, which,  important  as  it  is  from  a  trade  stand- 
point, is  still  more  important  from  that  of  national  de- 
velopment.   For  to  understand  the  significance  of  this 


CANADIAN   TRANSPORTATION 


839 


railway  development  is  to  understand  why  and  how 
Canada  has  grown. 

In  the  year  1912,  Canada  had  in  operation,  aeoord- 
mn  to  the  government  returns,  26,727  miles  of  railway. 
To  this  must  be  added  1,622  miles  of  the  Grand  Trunk 
Pacific,  which  were  not  included  because  they  are  not 
"open  for  traffic,"  in  the  sense  such  opening  is  defined 
in  the  Railway  Act.  That  is  to  say,  Canada  had  28,849 
miles  of  railway  carrying  traffic.  To-day  there  are  over 
30,000  miles  of  railway  in  this  class,  a  total  exceeding 
that  of  Great  Britain  and  Ireland.  In  addition  there 
are  about  8,000  miles  under  construction. 

Down  to  Confederation  there  were  constructed  2,278 
miles  of  railway.  In  the  year  ending  December,  1912, 
practically  the  same  mileage  was  constructed,— to  be 
exact,  2,282.  The  railway  mileage  has  almost  doubled 
since  1896. 

In  the  railway  construction,  as  it  stood  in  1867,  the 
Grand  Trunk  and  the  Great  Western  were  the  most 
important  so  far  as  Upper  and  Lower  Canada  were 
concerned.  The  Grand  Trunk,  which  had  been  under- 
taken to  afford  a  lire  of  conmiunication  from  Montreal 
to  the  western  boundary  of  Upper  Canada,  was  also 
concerned  with  the  more  ambitious  project  of  connect- 
int?  the  inland  provinces  with  the  maritime  provinces. 
The  Great  Western,  running  through  the  rich  farm- 
ing' country  of  Ontario  between  Lake  Ontario  and  Lake 
St.  Clair,  had  come  to  be  closely  allied  with  various 
American  lines,  more  especially  those  of  the  Vanderbilt 
group.  So  close  were  its  traffic  relations  that  one  of  its 
shareholders,  not  in  criticism  but  in  recognition  of  a  fact, 
said  that  it  was  an  "American  line."  Owing  to  its 
geographical  position  it  afforded  a  link  in  a  direct  line 
of  conmiunication  between  New  York  and  the  New 


340 


TRAFFIC 


£ngland  States  on  the  one  hand,  and  the  Central  West- 
ern States  on  the  other.  As  a  result  of  this  it  became 
embroiled  in  American  rate  wars  and  its  relations  with 
the  Grand  Trunk,  which  was  also  struggling  to  obtain 
a  share  of  the  American  traffic,  were  normally  strained. 
In  Nova  Scotia  and  New  Brunswick,  after  a  vary- 
ing choice  between  government  and  private  ownership 
and  construction,  a  number  of  small,  somewhat  isolated, 
lines  had  been  built. 

4.  Western  and  northwestern  railroads. — The  Cana- 
dian Pacific  and  Canadian  Northern,  which  have  come 
into  existence  since  1867,  are  a  recognition  of  the  change 
wrought  by  Canada's  acquisition  of  territory  west  of 
the  Great  Lakes.  They  are  also  an  effect  of  that 
change.  The  Canadian  Pacific,  which  was  the  condition 
of  British  Columbia's  entrance  into  Confederation,  was 
a  magnificent  leap  in  the  dark,  which  has,  however,  been 
justified  by  results.  The  Canadian  Northern,  which 
began  in  a  feeble  way  in  1896,  when  the  nucleus  of  the 
system,  the  Lake  Manitoba  Railway  and  Canal  Com- 
pany, was  acquired  by  MacKenzie  and  Mann,  is  a  fruit 
of  the  later  period  when  the  great  development  of  the 
North  West  was  just  beginning.  The  Grand  Trunk, 
in  the  early  days  of  the  Canadian  Pacific  project,  had 
the  opportunity  to  construct  that  line,  but  could  see  no 
traffic  in  it.  In  1903,  through  its  controlled  line,  the 
Grand  Trunk  Pacific,  it  also  entered  the  North  West. 

5.  Expansion  of  Canadian  railway  system. — While 
the  railway  construction  of  the  United  States  has  of 
recent  years  been  approaching  the  saturation  point,  it 
may  be  pointed  out  that  the  mileage  constructed  in 
Canada  in  1912  was  equal  to  three-fourths  of  that  con- 
structed in  the  United  States  in  the  same  year.  While 
railway  expansion  has  been  fairly  general  in  Canada, 


CANADIAN   TRANSPORTATION 


341 


71  iKjr  cent  of  the  railway  mileage  built  in  1912  was  west 
of  the  Great  Lakes.  Putting  the  matter  another  way,  it 
may  be  said  that  for  ever  -^ny  of  the  year  there  was, 
west  of  the  Great  Lakes,  average  construction  in 
1909  of  2.6  mUes;  in  1910, »  .  .11 ;  in  1911,  of  8.08,  and 
in  1912,  of  4.8  miles. 

Since  1867,  there  has  been  a  steady  movement  towards 
limiting  the  number  of  railways.  Larger  companies 
liave  eliminated  the  smaller  ones  by  absorbing  them. 
This  concentration  of  the  control  of  mileage  has  been 
in  the  main  along  the  lines  of  east  and  west  lines  of 
communication. 

6.  Influence  of  trunk  Knes.—WhUe  the  Canadian 
Pacific  was  undertaken  to  open  up  the  North  West,  it 
was  clearly  recognized  in  its  charter  that  lines  east  of 
Callender,  near  Lake  Nipissing,  were  essential  to  it; 
and  it  was  given  power  to  acquire  and  construct  such 
lines.  This  power,  notwithstanding  the  vigorous  op- 
position of  the  Grand  Trunk,  it  actively  exercised. 
The  Grand  Trunk  claimed  that  the  role  of  the  Canadian 
Pacific  was  to  collect  the  traffic  of  the  North  West  and 
hand  it  over  to  eastern  connecting  lines.  The  Canadian 
Pacific  said  this  would  leave  it  at  the  mercy  of  its  con- 
necting lines. 

While  the  Canadian  Pacific  was  thus  concerning  itself 
with  obtainmg  an  entrance  into  the  southern  peninsula 
of  Ontario  and  linking  its  lines  west  and  east  through 
Ontario  to  further  connect  with  lines  easterly  through 
Quebec,  the  Grand  Trunk  endeavored  to  checkmate  the 
Canadian  Pacific,  and  in  this  endeavor  rapidly  acquired 
such  lines  as  the  Great  Western,  the  Northern,  the 
Hamilton  and  North  Western,  and  the  Midland.  This 
period  of  hostility  between  the  two  railways,  with  ite 
attendant  expansion  by  consolidation,  ended  in  1890 


342  TRAFFIC 

when  the  Canadian  Pacific  had  obtained  a  western  out- 
let at  Windsor  and  the  railway  map  had  been  remade. 

The  struggle  of  the  Grand  Trunk  had  given  it  control 
of  north  and  south  lines  in  Ontario,  connecting  with  the 
strategic  points  of  entrance  from  the  northern  portions 
of  the  province.  It  had  at  the  same  time  consolidated 
its  system  in  that  province.  By  undertaking  the  con- 
struction  of  the  Grand  Tmnk  Pacific  it  took  up  the 
matter  of  east  and  west  development. 

The  Canadian  Northern  has  been  built  up  by  original 
construction,  lease  and  acquisition  of  control.  An  in- 
tegral portion  of  its  system  is  the  portion  of  line  con- 
structed in  Manitoba  by  the  Northern  Pacific,  which  is 
leased  to  that  province  and  by  it  sublet  to  the  Canadian 
Northern.  Charters  of  various  lines  have  been  obtained 
in  Ontario.  In  Quebec,  the  Great  Northern  came  into 
its  hands  through  control  of  bonds.  The  Quebec  and 
Lake  St.  John  and  the  Halifax  Southwestern,  although 
technically  separate  as  being  under  provincial  charters, 
are  a  real  part  of  the  east  and  west  line  it  is  building  up. 
While  there  are  some  eighty-nine  lines  of  steam  rail- 
ways in  Canada,  mere  enumeration  does  not  show  their 
significance.  To  the  total  as  given  in  the  government 
returns  may  be  added  Ihe  mileage  on  which  the  Grand 
Trtmk  Pacific  had  in  1912  "leave  to  carry  traffic."  An 
analysis  of  the  mileage  figures  shows  how  highly  con- 
centrated the  control  is: 

Percentage  of 
Total  MUeage 

Canadian  Pacific 41 

Canadian  Northern gj 

Grand  Trunk  and  Grand  Trunk  Pacific. .  .  17 

The  government  lines,  comprising  the   Intercolonial, 
Prince  Edward  Island,  Temiskaming  and  Northern 


CANADIAN   TRANSPORTATION 


848 


Ontario  and  New  Brunswick  Coal  and  Railway,  com- 
prise 7  per  cent.  The  lines  of  the  Great  Northern  and 
of  the  Canada  Southern  represent  jointly  8  per  cent. 
Tiie  remaining  mileage  is  concerned  primarily  with 
short  haul  lines  of  local  interest,  the  average  per  line 
being  only  forty-six  miles. 

7.  Railway  geography.— The  maritime  provinces  are 
served  by  the  Intercolonial  and  the  Canadian  Pacific, 
as  well  as  by  a  considerable  number  of  smaller  lines.    In 
Quebec,  the  Intercolonial,  the  Canadian  Pacific,  Cana- 
dian Northern,  and  the  Grand  Trunk  are  the  most  im- 
portant.   In  Ontario  are  found  the  Canadian  Pacific, 
Grand  Trunk,  Canadian  Northern,  Canada  Southern 
or  Michigan  Central,  Wabash,  Pere  Marquette,  and 
Temiskaming  and  Northern  Ontario.    Manitoba's  mile- 
age is  ahnost  wholly  made  up  of  the  Canadian  Pacific, 
the  Canadian  Northern  and  the  Grand  Trunk  Pacific. 
Tlie  latter  connects  at  Winnipeg  with  the  National 
Transcontinental  which  runs  easterly  through  Ontario 
and  Quebec  to  Moncton,  New  Brunswick,  and  which 
will  be  the  eastern  outlet  of  the  Grand  Trunk  Pacific. 
In  addition,  the  lines  of  the  Great  Northern  enter  Mani- 
toba.   Alberta  and  Saskatchewan  are  served  by  the 
Canadian  Northern,  Canadian  Pacific  and  Grand  Trunk 
Pacific,  as  well  as  by  the  Great  Northern  in  Alberta. 
In  British  Columbia,  in  addition  to  the  Canadian  Pacific, 
portions  of  the  Grand  Trunk  Pacific  are  in  operation. 
The  Great  Northern  also  connects  the  State  of  Wash- 
ington with  Vancouver,  and  has  mileage  in  and  out  of 
^^'ashington  connecting  with  the  mining  country  of 
Southern  British  Columbia.    There  is  also  under  con- 
struction, under  a  provincial  charter,   the   Canadian 
Northern   Pacific   which  will   connect   the    Canadian 
Northern  system  with  the  Coast  in  11)14. 


S44 


TRAFFIC 


.  Jl  lit 

t  I 


8.  Freight  resources.— Vrlnce  Edward  Island  has  as 
its  diief  industries  agriculture  and  fisheries.    It  ranks 
high  in  average  number  of  sheep  per  farm,  although  tlie 
farms  are  normally  small.     It  does  well  in  root  crops. 
In  New  Brunswick,  lumbering  and  fisheries  are  the 
most  important  industries.     Northern  New  Brunswick 
is  heavily  wooded,  and  the  River  St.  John  and  its  tribu- 
taries  facilitate  now  as  they  did  at  an  earlier  day  the 
liandling  of  logs.    Lumber  is  exported   to  Europe, 
South  America,  the  United  States  and  the  West  Indies! 
While  the  province  has  minerals,  these  are  not  as  yet 
commercially  important.     Its  coal  is  consumed  locally. 
Nova  Scotia  in  1911  was  credited  with  over  one-third 
of  the  value  of  the  fishmg  industry  of  Canada.    It  is 
active  in  mineral  production,  especially  in  coal  and  iron. 
The  lumbering  industry  is  not  of  much  importance. 
While  the  country  has  rich  agricultural  possibUities, 
these  have  not  been  fully  developed. 

Of  the  agricultural  staples,  Quebec  produces  the 
cereals  and  root  crops.  Oats  and  hay  are  the  most 
important  items  in  its  agricultural  production.  It  sup- 
plies two-thirds  of  the  tobacco  grown  in  Canada.  Its 
lumber  and  the  industries  dependent  thereon,  such  as 
pulp  and  paper  mills,  are  very  important.  In  1910, 
Quebec  had  one-half  the  pulp  miUs  in  Canada.  Ontario 
produces  in  large  quantities  all  kinds  of  agricultural 
produce  and  live  stock  and  has  also  a  largely  developed 
milling  industry.  Fruit  is  produced  in  the  Niagara 
Peninsula  and  along  Lake  Erie.  This  is  for  the  most 
part  consumed  in  Canadian  cities  and  towns,  thereby 
creating  short  haul  traffic.  Dairying  and  cheese-mak- 
mg  are  also  important.  In  minerals,  iron,  nickel,  cop- 
per and  silver  are  the  most  important.  The  lumbering 
mdustry  has  been  unportant  in  Ontario  from  an  eariy 


CANADIAN    TRANSPORTATION 


S45 


date,  and  now  tends  to  be  concentrated  in  large  indus- 
trial concerns.  In  point  of  manufactures,  Ontario 
stands  first  among  the  provinces  of  the  Dominion. 

In  Manitoba  and  Saskatchewan,  the  all-important 
industry  is  agriculture.  While  wheat  has  been  the  pre- 
dominant factor  in  Manitoba,  attention  is  now  being 
devoted  in  greater  degree  to  mixed  farming.  In  north- 
ern Saskatchewan,  a  large  saw-milling  industry  has 

developed. 

Alberta  has  more  diversified  resources  than  the  prairie 
provinces  east  of  it.  While  Saskatchewan  has  coal. 
Alberta  has  much  larger  supplies.  In  the  section 
around  Lethbridge,  in  the  Crow's  Nest  Pass  section, 
and  in  the  territory  which  the  Grand  Trunk  Pacific  is 
opening  up  near  the  Yellow  Head  Pass,  large  deposits 
of  bituminous  coal  are  to  be  found.  Ranching  as  it 
was  in  the  earlier  days  is  passing  with  the  breaking  up 
of  the  range.  Farming  is  more  diversified  than  in  Sas- 
katehewan.  In  southern  Alberta,  there  is  a  heavy  yield 
per  acre  of  winter  wheat.  Spring  wheat,  oats  and  live 
st(K'k  are  important  items  of  production  further  north 
in  the  province. 

British  Columbia  has  attracted  attention  because  of 
its  minerals.  While  its  gold  attracted  most  attention  in 
the  earlier  days,  its  large  supplies  of  coal  on  Vancouver 
Island  and  in  the  Crow's  Nest  I'ass  section  are  still 
more  important.  Lumbering  is  carried  on  on  an  exten- 
sive scale.  In  1911,  the  cut  was  over  one  billion  feet. 
In  the  fisheries,  British  Columbia  divides  the  field  with 
Nova  Scotia.  Agriculture,  although  the  valleys  and 
knch  lands  afford  rich  opportunities,  has  not  been  devel- 
oped to  its  fullest  extent;  oats,  potatoes  and  hay  are  the 
most  important  products.  Fruit  is  raised  in  such  val- 
leys as  the  Okanagan,  the  Kootenay  and  the  Arrow 


S46 


TRAFFIC 


Lakes.     There  is  an  expanding  trade  in  fruit  with  the 
prairie  provinces. 

9.  Distribution  of  railway  mileage. — Analysis  of  the 
figures  of  railway  mileage  as  contained  in  the  govern- 
ment returns  for  the  year  ending  June  80, 1912,  shows 
the  following  distribution: 


Provincea 
Prince  Edward  Island. 

New  Brunswick 

Nova  Scotia 

Quebec 

Ontario 

Manitoba 

Saskatchewan 

Alberta. 

British  Columbia 


Percentage  qf      Percentage  qf 
Population  "" 


13.01 

27.8 
85. OS 

88.7 


11.9 

14.5 
S£.09 

41. OS 


It  might  seem  that  in  proportion  to  population  the 
section  west  of  the  Great  Lakes  is  well  supplied  with 
railways;  but  this  would  be  a  hasty  conclusion.  Of  the 
total  area  embraced  in  the  different  provinces,  the  prov- 
inces west  of  the  Great  Lakes  embrace  57  per  cent.  The 
need  and  opportunity  for  additional  railway  construc- 
tion, not  only  in  this  but  also  in  other  sections  of  Canada, 
may  be  gathered  from  the  following  table: 


Prorineet 


Area  in      Railway 
Population    Sq.  Milet     Mileage 


Mile*  qf 

Railway 
per  IjOOO 
Sq.MUee 


PojndaHM 

perMa$4 

RaUwag 


Prince  Edward  I'd. . .  9S,7S8 

New  Brunswick 351.889 

Nova  Scotia 49«,SS8 

Quebec 2,002,712 

Ontario 2.523.208 

Manitoba 455,614 

Saakatchewan 492,342 

Alberta 374.663 

British  Columbia 392.480 

Yukon 8,512 


2,184 

27,985 

21,427 

351,783 

260,862 

73,731 

251,700 

255,285 

355.855 

207,076 


1.545 
1,357 
3.883 
8.546 
3.520 
3.754 
1.897 
1.855 
102 


12.31 
5.5 
6.S 
1.1 
3.2 
4.7 
1.4 
0.7 
0.5 
0.05 


8M.1 
227.7 
S0i.8 
515.4 
205.2 
129.4 
190.8 
197.8 
191.2 


10.  Potential  railway  traffic.— An  interesting  index 
of  the  traffic  possibilities  of  an  agricultural  country  like 


CANADIAN   TRANSPORTATION  847 

Canada  is  to  be  found  in  the  sum  total  of  agricultural 
production.  For  while  this,  on  account  of  local  con- 
sumption, will  of  course  be  much  in  excess  of  what  moves 
by  rail,  it  shows  the  maximum  possible  movement.  It 
is  also  of  interest  as  showing  where  the  greatest  traffic 

possibilities  are. 

Details  as  to  agricultural  production  and  as  to  bve 
stock  are  given  in  a  summary  which  follows.  This  sum- 
mary is  based  in  part  on  the  returns  of  1910  and  m 
part  on  those  of  1912. 

Production  of  Farm  Products  of  AU  Kinds,  Except 

Live  Stock 

Prodnees  JjH^a^s.       ^'T^' 

NovaScotia ;.89J.«8*  JJ 

SjSrio 16.628,455  46  9 

^^:^....-         r^];z    ijr 

Saskatchewan ^'Hl'Si  a  5 

BriS^Coiunibia; . . . .       •  •  • .  • .  .__m47«  0.6 

35,895.353 

Total  Live  Stock 

Prorincea  ^^^^  Pmsentagt 

NovaScotia SJJ'SS  A 

NewBnu^ck.....^^....;...    ^^^  ^J 

&•■■••••  «•»  1.1 

Manitoba ?««  «m  8  OS 

Saskatchewan J'lS'SS  115 

Alberto ^'T'SJ  0« 

British  Columbia ^^'^^  "" 

14,45«,117 

11.  Actwd  traffic.— Ot  course,  the  potential  traffic 
differs  in  such  items  as  have  been  quoted  from  the  actual 
traffic.     Tl^  traffic  returns  for  1912  show  that  the  ton- 


348  TRAFFIC 

nage  of  agricultural  products  transported  was  50  per 
cent  of  that  shown  in  the  preceding  statement,  while  in 
the  case  of  animals  and  animal  products  it  was  about  21 
per  cent. 

Between  1907  and  1912  the  total  freight  traffic  of 
Canadian  railways  has  increased  by  58  per  cent,  from 
56.4  to  89.4  millions  of  tons.  In  the  same  period  agri- 
cultural  products  carried  increased  88  per  cent,  products 
of  mines  70  per  cent,  and  manufactures  104  per  cent 
The  following  table  shows  the  percentage  importance' 
of  the  leading  articles  carried: 

Distribution  of  Freight  Traffic  by  Percentages  of  Each 

Year's  Traffic 

Prod.ucUolWu.ture IS'L      iZ      /r7,       //?,       //Vt      S% 

..         ..  5?"**!  S««8      35  M      M.81       S5  1         35  87      35  S 

Mwaetu^^*-"-.-.-.:.:-     SJS  II.sl  iJ2  l?i  is 
JlSSl:::::::::::::::  t?.  i?:i;    JS    ;is    l^   It 

Products  of  agriculture  and  products  of  the  mines  are 
the  most  important  in  point  of  tonnage.  In  comparing 
the  increase  of  tonnage  of  1912  over  1907,  these  two 
dasses  are  responsible  for  63  per  cent  of  the  increase. 
The  distribution  of  carriage  between  the  three  leading 
railroad  systems  in  respect  of  carriage  of  agricultural 
products  and  mining  products  works  out  as  follows  for 
1912: 

«wlucts  of  Apiculture 38%         11%        is% 

Product,  of  Mines g^         ']|        JJ| 

The  passengers  carried  in  1912  were  61.1  miUions,  as 
compared  with  32.1  millions  in  1907,  an  increase  of 
28  per  cent. 


CANADIAN   TRANSPORTATION 


849 


12.  Traffic  interrelations  of  Canada  and  the  United 
States. — Nature  has  bound  up  the  transportation  system 
of  Canada  with  that  of  the  United  States.  The  water- 
way, extending  into  the  heart  of  the  Continent,  is  com- 
mon to  both  countries.  The  southward  dip  of  boundary 
allows  a  portion  of  the  Province  of  Ontario  to  project 
far  south,  with  the  result  that  the  most  direct  line  be- 
tween the  northwestern  states  and  New  England  is  by 
way  of  Sault  Ste.  Marie  and  across  Canadian  territory. 
The  direct  lines  of  the  Grand  Trunk,  Wabash,  Pfere 
Marquette,  and  Michigan  Central  between  Detroit  and 
Buffalo  traverse  the  southwestern  peninsula  of  Ontario. 

Then,  again,  the  Canadian  territory  occupies  a  posi- 
tion of  advantage  in  regard  to  combination  lake  and 
rail  lines.  Through  freight  between  New  England 
points  and  the  northwestern  states  may  be  economically 
handled  by  railways  running  across  Canada  to  Georgian 
Bay  ports,  and  thence  by  boat  to  American  lake  points. 

In  the  portion  of  Canada  lying  east  of  Montreal,  the 
conditions  are  reversed.  The  northward  trend  of  the 
Imundary  makes  the  Canadian  railway  system  dependent 
in  some  degree  upon  United  States  territory.  The 
northeastern  porticm  of  Maine  almost  divides  New 
Brunswick  from  Quebec  by  an  intervening  neck  of 
Tnited  States  territory.  The  most  direct  line  between 
Montreal  and  maritime  jMrovince  ports  is  across  Maine. 
The  Canadian  Pacific  has  its  shcMi  line  across  Maine  to 
New  Brunswick;  it  also  has  its  connection  via  Newport, 
Vermont,  with  the  American  lines.  The  Grand  Trunk 
routes  export  and  import  traffic  in  winter  via  its  line  to 
and  from  Portland,  Maine.  West  from  the  "Soo"  \ht 
Canadian  Pacific  has  its  controlled  system,  the  "Soo" 
line,  which  enters  Canada  at  Portal,  and  connects  with 
the  main  line  of  the  parent  railway  at  Paaqua, 


350 


TRAFFIC 


Moose  Jaw.    The  Canadian  Pacific  again  enters  United 
States  territory  via  Kingsgate.  British  Columbia,  con- 
nectmg  with  the   lines   of  the   Pacific   northwestern 
states.    Thfc  Hill  lines  wliich  are  being  constructed  in 
British  Columbia  under  the  name  of  the  Victoria,  Van- 
couver  and  Eastern,  in  tapping  the  mining  section  of 
southern  British  Columbia,  swing  back  and  forth  across 
the  mternational  boundary.    The  Canadian  railways 
own  or  control  more  miles  of  railway  in  the  United 
States  than  are  owned  or  controlled  in  Canada  by  Ameri- 
can lines.     West  of  Port  Arthur.  Canadian  lines  across 
the  international  boundary  at  eight  points,  while  the 
American  lines  cross  at  fifteen.     East  of  Port  Arthur, 
Canadian  lines  cross  at  twenty-three  points,  while  Amer- 
ican lines  cross  at  one. 

The  result  of  this  interrelation,  both  of  natural  and 
of  artificial  means  of  transport,  is  that  in  respect  not 
only  of  through  movements,  but  also  of  local  transport, 
the  railway  systems  of  the  two  countries  are  in  many 
respects  one.    The  traffic  of  the  railways   in  bond 
through  Canada  and  the  United  States  has  become  of 
large  proportions.    Importations  for  the  eastern  states 
from  the  Orient  come  in  by  way  of  Vancouver  and  move 
east  on  the  Canadian  Pacific  lines.     New  England  cot- 
tons reach  the  Orient  by  the  same  route.     Canada  ob- 
tains importe  by  way  of  American  porta,  and  traffic 
between  different  parts  of  Canada,  as  well  as  between 
different  parts  of  the  United  States,  moves  through 
intervening  American  or  Canadian  territory  as  con- 
venience demands. 

18.  Volume  of  transit  movement.— What  the  volume 
of  this  m  transit  movement  is  to-day  it  is  impossible  to 
say.  It  has  been  estimated  that  taking  the  period  1868- 
1894.  the  average  annual  value  of  the  domestic  transit 


CANADIAN   TRANSPORTATION  Ml 

trade  from  point  to  point  in  Cunada  was  $7,500,000. 
The  United  States  Treasury  Department  issued  at  one 
time  a  special  circular  covering  the  period  1894  to  1807. 
This  showed  the  statistics  for  the  domestic  transit  trade 
of  the  United  States.  The  statistics  for  the  Canadian 
domestic  transit  trade  have  not  been  kept 

Although  this  trade  is  of  considerable  advanUge  to 
the  Canadian  shipper,  it  is  probably  of  much  smaller 
proportions  than  the  American  domestic  trade.  This 
latter  trade  includes  tonnage  from  practically  all  the 
various  lines  of  industry  in  the  United  States;  and  all 
the  states  are  interested  in  it.  The  leading  points 
through  which  the  tonnage  concerned  in  this  traffic 
moves  are  Port  Huron  and  Detroit,  Michigan,  Suspen- 
sion Bridge  and  Buffalo,  New  York.  The  special  re- 
turn of  the  Treasury  Department  above  referred  to  gives 
the  following  data  concerning  the  domestic  transit  trade 
between  points  in  United  States  territory  through 
Canada: 

Number  Weight  of  ConterUa 
Year                           ef  Cart  in  Tone 

1894  425,809  7,847.058 

1895'  480,678  8,068,51* 

1896  480,040  5,964,405 

1897       448,875  5,851.350 


MICROCOPY   RESOLUTION   TEST   CHART 

(ANSI  ond  ISO  TEST  CHART  No.  2) 


I 


2.8 


t37 

1 4.0 


12.2 
2.0 

1.8 


^    y^PPLM-D  IN/MGE     Ir 


1653  East   Main   Street 

Rochester,    New   York         U609       USA 

(716)   482  -  0300  -  Phone 

(716)  288-S989  -  Fok 


CHAPTER   II 


FREIGHT    CLASS  iriCATION 

14.  Classification  fundamental. — A  shipper  of  freight 
must  acquaint  himself  with  the  freight  classification  and 
the  class  tariffs.  In  some  cases  he  must  consult  com- 
modity tariffs  as  well.  Class  tariffs  and  commodity 
tariffs  are  considered  in  the  next  chapter.  A  classifica- 
tion  is  in  effect  a  ready  reference  list  of  the  articles  of 
freight  which  a  railway  holds  itself  out  to  carry  for  the 
public  offering  traffic. 

Logically  and  historically,  the  striking  of  the  rate 
comes  first;  but  in  practice  today  the  classification  comes 
first.  Industry  has  become  very  complex  and  the  arti- 
cles offered  for  carriage  are  many  and  diversified.  It 
is  obvious  that  to  carry  in  a  tariff  by  specific  reference 
the  names  and  rates  of  the  commodities  which  the  rail- 
ways hold  themselves  out  to  carry  would  make  the  tariffs 
exceedingly  voluminous. 

Even  in  early  traffic  conditions  it  was  recognized 
that,  although  the  articles  and  rates  to  be  carried  might 
be  included  in  a  single  sheet,  there  must  be  some  system 
of  grouping  and  differentiation  of  charge.  The  first 
tariff  sheet  in  the  United  Stales  was  issued  August  27, 
1816,  by  the  Lake  Champlain  Steamboat  Company,  and 
set  out  the  following  articles  and  rates: 

Pot  and  pearl  ashes,  per  bbl ^1.00 

Provisions  per  hundred 75 

Flour  per  bbl 50 

S52 


FREIGHT    CLASSIFICATION  353 

Firkins  of  butter  or  lard $0.25 

Tierces  of  seed  or  salt 1.25 

Tierces  of  rice  ....        2.00 

All  other  articles  (except  bullion  or  specie) ,  per  ton  5.00 

In  the  days  of  wagon  transportation  two  classes  were 
reco^niized — light  and  heavy  articles.  The  rates  on  the 
former  were  assessed  on  the  cubic  foot;  on  the  latter,  on 
the  hundred  pounds.  As  late  as  the  middle  of  last  cen- 
tury, the  railways  of  the  United  States  arranged  their 
classifications  to  suit  their  varying  conditions  and  needs. 
Tlie  grouping  adopted  was  usually  a  simple  one.  A 
few  examples  from  the  year  1847  will  show  this.  The 
Xashua  and  Lowell,  which  was  fifteen  miles  in  length, 
had  only  one  class,  and  freight  was  charged  $1.00  per 
ton  for  the  distance.  On  the  Boston  and  Worcester,  a 
somewhat  more  elaborate,  although  still  simple,  group- 
ing was  made : 

Coal,  iron,  lumber  and  manure 4c.  per  ton  mile 

Heavy  merchandise,  e.  g.,  sugar,  salt, 

butter 6c.    "     "      " 

(iroccries  and  dry  goods 6c.  to  8o.    "     "      " 

Light  and  bulky  merchandise ...  6c.  to  10c.    "     "      "  * 

The  Boston  and  Maine,  then  seventy-one  miles  in 
length,  had  two  classes,  viz. : 

Coal,  iron,  manure,  lumber,  salt,  sugar,  butter  and  gro- 
ceries, $2.20  per  ton  for  the  whole  distance. 

Light  and  bulky  merchandise  and  dry  goods,  $3.62  per 
ton  for  the  wliole  distance. 

The  Concord  also  had  two  classes. 

The  ratings  of  the  classification  are  either  for  less  than 
carloads  (L.C.L.) ,  that  is  to  say,  for  one  hundred  pounds 
or  for  multiples  of  one  hundred  pounds  charged  as  a 

C-III-88 


354 


TRAFFIC 


multiple  of  the  hundred  pound  rate,  or  for  carloads 
(C.L.).  Where  no  distinction  is  made  in  rating  in  re- 
spect of  quantity  between  a  carload  and  a  smaller  ship- 
ment  and  the  rate  is  the  same  per  hundred  pounds  for 
the  smaller  as  for  the  larger  shipment,  it  is  called  an  any- 
quantity  rating.  An  any-quantity  rating  ena])les  the 
small  shipper  to  compete  on  fairly  equal  terms  with  his 
more  powerful  competitor. 

It  is  contended  by  the  railways  that  when  carload 
ratings  are  provided,  they  should  represent  a  legitimate 
commercial  necessity  and  a  genuine  carload  movement. 
That  is  to  say,  the  average  bulk  moving  should  be  such 
as  to  justify  the  C.L.  rating.  From  the  standpoint  of 
the  railway,  it  is  articles  which  are  traffic  producers,  such 
as  fuel,  raw  materials,  productive  implements  or  ma- 
chinery, building  materials,  foodstuffs  other  than  luxu- 
ries, which  should  have  the  first  consideration  in  granting 
C.L.  ratings. 

The  railway  position  in  regard  to  the  conditions  Avhich 
justify  granting  C.L.  ratings  may  be  summarized  as 
follows : 

It  is  to  the  interest  of  the  railways,  as  well  as  to  the 
public,  that  rates  be  low  enough,  but  not  below  a  remu- 
nerative point,  to  permit  the  general  movement  and  dis- 
tribution of  commodities  in  general  demand  in  large 
quantities  for  construction,  building,  manufacturing 
and  other  purposes.  It  is  a  sound  rule  for  railways  to 
adapt  their  classification  to  the  laws  of  trade;  if  the 
article  moves  in  sufficient  volume  and  the  demands  of 
commerce  will  be  better  served,  it  is  reasonable  to  give 
It  a  carload  classification.  A  lower  rate  for  carloads  than 
that  applied  to  shipments  of  light  traffic  in  less  than  car- 
load lots  should  only  be  required  upon  circumstances  and 
conditions  of  service  to  the  large  shipper  so  dissimilar 


FREIGHT    ("LASSIFK  ATION 


355 


as  to  require,  in  the  line  of  equal  treatment,  a  less  rate 
than  is  made  for  the  small  shipper.  When  a  claim  is 
made  for  lower  rates  for  carload  shipments  than  those 
applied  to  shipments  of  light  traffic  in  less  than  carloads, 
it  shoidd  be  shown  that  failure  to  apply  such  lower  rates 
results  in  unjust  discrimination. 

The  objection  of  the  railways  to  granting  all  com- 
modities C.L.  ratings  is  in  great  degree  due  to  their 
fear  that  if  this  were  done  there  would,  through  the  use 
of  the  mixing  privilege,  which  is  referred  to  later,  be  a 
building  up  of  a  carload  composed  of  less  than  carload 
quantitieo.  Looked  at  from  the  standpoint  of  the  cost 
of  the  service,  the  carload  movement  is  less  burdensome 
than  the  less  than  carload  movement. 

While  in  the  early  days,  when  hauls  were  short,  very 
simple  grouping  was  possible,  and  while  it  was  even 
possible  for  a  single  sheet  to  set  out  both  the  commodities 
and  the  rates,  modern  business  conditions  and  the  in- 
creasing length  of  the  haul  have  wrought  great  changes. 
So  complex  has  industry  become  and  so  many  and 
diversified  are  the  articles  offered  for  carriage,  that  the 
tariff  of  Canada,  with  its  711  items,  is  short  and  simple 
as  compared  with  the  Canadian  Classification  which, 
with  its  3,742  L.C.L.  ratings  and  2,347  C.L.  ratings, 
covering  7,011  items,  enfolds  a  group  of  commodities 
stretching  from  acorns  to  zinc  washers.  A  similar  com- 
plexity is  to  be  found  in  the  United  States,  where  the 
Otticial  Classification  carries  some  10,000  items.  In  the 
Southern  Classification  there  were,  in  1908, 3,503  L.C.L. 
and  773  C.L.  ratings;  in  the  Western  Classification, 
J.729  L.C.L.  and  1,690  C.L.  ratings;  while  the  Official 
Classification  had  5,852  L.C.L.  and  4,235  C.L.  ratings. 

I  "^nder  such  conditions  the  attempt  to  include  in  each 
taiiff  all  articles  whether  of  actual  or  potential  carriage 


■IJ&lil'il 


356  TRAFFIC 

would  make  the  tariffs  bulky  and  cumbersome.    In  the 
item  of  printing  alone,  it  would  mean  a  burdensome 
expense.    It  is,  therefore,  necessary  to  have  some  ready 
reference  work  (which  the  Classification  is)  which  sets 
out  what  articles  the  railway  is  prepared  to  carry.    This 
makes  the  tariff  simpler  and  therefore  of  more  service  to 
the  shipper.    The  early  examples  of  classification  which 
have  been  referred  to  show  that  it  was  appreciated, 
though  in  a  crude  way,  that  it  was  unfair  to  charge  all 
articles  alike.     The  classification  has  also  to  see  in  its 
gioupings  that  the  groupings  are  relatively  reasonable. 
15.  Hotv  dmsificalions  are  built.— \Xh\\e  in  the  early 
days,  when  hauls  were  short  and  there  was  but  little  inter- 
change of  traffic,  the  confusion  arising  from  diversities 
of  classification  was  not  so  serious  in  its  effects,  but 
when,  as  in  the  United  States,  through  consolidation  of 
existing  lines  and  additional  construction,  the  lines  of 
railway  reached  steadily  into  the  interior,  enabling  longer 
hauls  to  be  made,  and  interchange  of  traffic  between  rail- 
^vays  became  necessary,  it  often  happened  that  different 
portions  of  the  same  railway  were  subject  to  different 
classifications.    The  efl'ect  of  this  may  be  seen  in  an  ex- 
treme form  in  the  situation  in  which*  the  Wabash  Rail- 
way found  itself  in  1883.    In  that  year  it  had  in  effect 
the  following  classifications : 

No.  of  Classes  in 

Middle  and  Western  States 5°  '"" 

Southern  Railway  &  Steamship ig 

Mississippi  Valley 5 

Revised  Western 9 

Trunk  Line,  Eastbound 13 

Trunk  Line,  Westbound 5 

Texas g 

Pacific  Coast,  Eastbound g 

Pacific  Coast,  Westbound .Rates  quoted  for 

each  article 


FHKIGHT    CLASSIFICATION 


357 


II  ri(|niies  no  elaboration  to  conclude  that  the  shipper, 
iiiikss  he  had  especial  facilities  for  keeping  track  of  the 
situation,  would  be  utterly  at  sea. 

1(5.  Classifications  of  the  United  States. — By  1887 
thcie  had  come  into  existence  three  leading  Classifica- 
tions, the  Official,  the  Southern,  and  the  Western.  The 
Otiicial  covers  traffic  in  the  territory  north  of  the  Ohio 
anil  Potomac  Rivers,  including  New  England,  and  east 
of  a  line  from  Chicago  to  St.  Louis  and  the  mouth  of  the 
Ohio  River.  This  is  the  most  dense  traffic  territory  in 
the  United  States.  The  Southern  apphes  east  of  the 
Mississippi  River  and  south  of  Official  territory'.  The 
Western  Classification  applies  west  of  Lake  Michigan, 
the  Mississippi  River,  and  Official  Territory.  Occasion- 
ally there  are  overlappings  of  these  classifications;  for  ex- 
ample, in  the  case  of  a  shipment  to  or  from  a  point  near 
the  boundary  of  the  classification  territory  one  classifica- 
tion may  govern  through.  Thus,  St.  Louis  uses  the 
OlKeial  Classification  eastbound,  the  Western  west- 
l)ound,  and  the  Southern  southbound. 

A\'hile  there  has  been  a  movement  for  uniform  classi- 
iieation  in  the  United  States,  the  diversity  of  trade  and 
traffic  conditions  has  so  far  prevented  the  success  of  this 
movement.  Consequently,  there  is  no  necessary  uni- 
formity as  between  the  classifications,  either  in  respect  of 
rating  or  description.  Under  Official  Classification  No. 
.'{0  there  are  under  the  item  "Clothing,"  eight  descrip- 
tions, the  final  one  being  "Clothing  in  bales  or  boxes,  not 
otherwise  specified,  first  class,  L.C.L."  In  Western 
Classification  No.  50  there  are  eleven  descriptions,  but 
^^!lile  Clothing,  boxed,  N.O.S.,  is  carried  first  class 
L.C.L.,  in  bales,  N.O.S.,  it  is  not  taken.  The  Official 
Classification  has  six  numbered  classes  and  two  "rules." 
These  are  in  effect  additional  classes.    Rule  No.  25  in- 


'hy. 


358  TRAFFIC 

eludes  articles  rated  at  13  per  cent  less  than  second  class, 
and  Rule  No.  26  includes  those  rated  at  20  per  cent  less 
than  third  class.  The  Southern  Classification  has  six 
numbered  and  seven  lettered  classes.  The  Western  con- 
tains ten  classes,  five  numbered  and  five  lettered. 

17.  Canadian  classification. — In  the  earlier  days  the 
same  chaotic  conditions  hi  regard  to  classification  existed 
in  Canada  as  in  the  United  States.  The  various  small 
independently  operated  roads  had  each  its  individual 
classification,  there  being  no  necessary  common  base.  In 
1874,  the  class  rates  applying  from  station  to  station  on 
the  Grand  Trunk  were  governed  by  the  "Grand  Trunk 
Railway  Classification  of  Freight."  The  merchandise 
classes,  which  were  four  in  number,  scaled  as  follows: 

1-st  class 200%  of  4th 

2nd     '•    167%    "     " 

3rd      "    133%   "     " 

4th      "    100%   "     " 

In  addition,  there  were  four  special  columns  governing 
carload  rates  on  flour  per  barrel,  grain  per  one  hundred 
pounds,  lumber  per  car,  and  live  stock  per  car.  Various 
other  items  were  scheduled  as  "same  rates  as  flour," 
"same  rates  as  lumber,"  and  so  on.  There  were  also 
various  ratings  which  were  multiples  of  the  four  mer- 
chandise class  ratings. 

The  Canadian  Classiflcation  came  into  existence  in 
1884.  It  had  at  first  nine  classes;  it  has  now  ten.  But 
in  effect  it  may  be  said  to  have  sixteen,  for  the  multiples 
of  the  first  class  rating  must  also  be  noted.  There  are 
the  ratings  1|;  D-1  (double  first  class)  ;  2i-l  (two  and 
one-half  times  first  class);  3-1;  3J;  4-1.  The  Classi- 
fination  is  built  up  on  the  fifth  class,  fourth  being  25  per 
cent,  third  50  per  cent,  second  75  per  cent,  and  first  100 
per  cent  higher  than  fifth.    In  the  first  five  classes  the 


FREIGHT    CLASSIFICATION 


350 


railway  loads  and  unloads,  except  where  the  piece  or 
package  weighs  two  thousand  pounds  or  over;  in  tlie 
sixth  to  tenth  classes  it  does  not. 

There  is  a  subdivision  of  Canadian  Classification  ter- 
ritory, known  as  Canadian  Freight  Association  terri- 
tory; this  includes  Canadian  points  east  of  but  not  m- 
chuling  Port  Arthur,  and  east  of  and  including  Sault 
Ste  -Slar'ie,  Sarnia,  and  Windsor.  Westbound  from  this 
territory  to  points  in  Oregon,  Washington,  and  North 
Pacific  Coast  terminals  in  the  United  States,  the  move- 
ment is  subject  to  the  Canadian  Classification. 

18.  International  traffic— The  international  trade 
movements  between  Canada  and  the  United  States  and 
some  movements  in  Canada  are  subject  to  the  classifica- 
tions of  the  United  States.  In  a  summary  way  the  lead- 
ing? examples  are  as  follows : 
Official  Classification  applies— 

(a)  From  C.  P.  R.  stations  west  of  ]SIontreal  to  Mon- 
treal for  export. 

(b)  Canadian  Freight  Association  territory  to  and 

from  Illinois,  Iowa,  Missouri. 

(c)  Canadian  Freight  Association  t    ritory  to  and 
from    Louisiana,     Kentucky,     Tennessee,     Alabama, 

Florida. 

Southern  Classification  applies— 

Canadian  Freight  Association  territory  to  and  from 
Alabama,    Florida,    Georgia,    Kentucky,    Mississippi, 
North  Carolina,  South  Carolina,  Tennessee,  and  Vir- 
ginia. 
Western  Classification  applies— 

(a)  Canadian  Freight  Association  territory  to  and 
from  British  Columbia. 

(b)  Same  territory  to  and  from  Arkansas  and  Okla- 
homa. 


'MiO 


THAFFIC 


(c)  Same  territory  to  and  from  Rocky  Mountain 
States  and  west  to  the  Pacific. 

(d)  California,  Nevada  and  Utali  to  3Ianitoba. 
The  Railway  Act  recognizes  international  traffic  as  a 

complicating  factor,  for  it  provides  that  subject  to  any 
order  or  direction  of  the  Canadian  Railway  Commissioi 
any  freight  classification  in  use  in  the  United  States  may 
l)e  used  in  the  traffic  to  and  from  the  United  States. 
^  19.  Expansion  of  Camidinn  classification.  —  The 
Canadian  Classification  has  steadily  increased  the  num- 
ber of  items  as  business  has  exparided.  At  first,  there 
^yere  simple,  broad  groups.  There  has  been  a  progres- 
sive differentiation  of  ratings.  This  is  shown  in  the  com- 
parative summary  of  ratings  which  follows: 


Year 
1884 
1913 


L.C.L. 
1,284 
3,74« 


C.L 

mi 

2,347 


Any  Quantity 
459 
923 


On  account  of  the  variety  of  articles  covered  by  the 
classificatiidi,  it  would  be  impossible  without  quoting  the 
complete  classification  to  give  a  fully  illustrative  list. 
For  the  purpose,  however,  of  illustrating  the  way  in 
which  the  grouping  is  arranged,  the  following  examples 
may  be  quoted  (see  also  specimen  page  opposite) : 

Class  1.  Dry  goods,  clothing. 

2.  Cotton  piece  goods. 

3.  Apples;  fish,  salted,  dried  or  smoked. 

4.  Lumber,  cement,  building  material. 

5.  Iron  pipe,  pig  iron,  horseshoe  nails,  green 

coffee,  paints,  etc. 
I'     6.  3Iachinery,  agricultural  implements,  etc. 

7.  Railway  equipment. 

8.  Flour,  grain,  and  coarser  grain  products, 

potatoes,  and  vegetables. 


CUiiiflcttioa  Ho.  li  R««dt:- 


im 


1  10  :'ii 


Chemicait.  Dnm  and  If  adi 

clttM — 

Acid*  (See  Notri): 
Arctic; 

Id  demiiuhiu,  sU  rov- 
ereU  with  wicker 
ORB . 

In  deraijohna  covererti 
with  wicker  and 
packed  with  itruwi 
rnb«»ket».O.n.B.J 

In  demijuhna,  boxed 

O.R.B 

In  barrel* 


:'  Id   3  Cigarettes  ni.d  CijBrs — 

In  cases  securely  strapped, 

or  with  iron  straps  or 

-  clamps  on  the  ends .... 

In  cases,  not  strapped  as' 

above l^l 


D-1 


I'i 

1 
3 


1 


;t  JH  27  Crates,  Empty,  prepaid— 

i    L.C.L • 

I    C.L.,  minimum  20.000  lbs. 


4  .'I  j()  Detonators.— Subject   tO; 
I     Rule  10. 

Dnr  Good* —  j 

5'.>2   5  Bacging  and  Bags,  N.O.S.: 

I     i        In  bUe* 

1  Cloth:            ^                ^., 

(i :'.'  '.3  Brattice— Same  as  Oil 

I  Cloth. 
I 


i  > 

8  Equipment,  Roadmaking — 

I  Consisting  of  carts,  dump 
cars,  dump  wagons,  en- 
gines  and  boilers, 
graders,  plows,  road  ma- 
chines, road  rollers,  rock 
crushers,  scrapers,  stone- 
spreading  wagon.i,  tile 
moulds  and  wheelbar- 
rows, in  mixed  carloads 

i 

I  P 

Fibre—  ' 

7     Wood: 

a         Chemical 


D-1    U> 


ICbamicala.  Druga  aad  Modi'-, 
'        clnaa- 

Acids  (See  Notes): 
Acetic: 

In  demiiohn*  all  cov- 
ered    with     wicker,' 

ORB . 

In  demijohns,  cork  and 
canvas  covered,! 
ORB  .| 

In  demijohns  covered 
with      wicker      and 
packed  with  straw  in 
baskets,  OR.B..... 
In   demijohns,   boxed, 

ORB 

In  barrels 

Cigarettes  and  Clgara— 
In  cases  securely  strapped 
with  wire  or  band  iron;  or 
in  cases  fastened  with 
iron  or  steel  key  cUimpa, 
and  boards  forming  top. 
bottom  and  sides  stapled 
together  on  the  inside.i 
and  so  stated  by  shipper 

on  bill  of  lading 

In  eases,  not  fastened  as 

above • 

Crates,  Empty,  prepaid— 
8.II.,  C.L.  mimmum  20,000 
Ibi 


J3 
I 


S2fi 
10  20 


1120 

12  20 


Dry,  in  bales.  C.L.  mim- 
mum 20.000  lbs .     . 
Fireworks. — Subject  to  Rule 
10. 

Firecrackers 

N.0.8 


1 
D-1 


D-1 


D-1 


IH 


1    I 
D-1 


D-1    10 


'Eliminate  item  50,  page  21^ 
{     See  item  4.  page  2  of  this 
Supplement. 

Dry  Oooda—  »,  «  - 

Bags  and  Bagging,  N.O.S.: 

In  bundles  or  bale* ... 
Cloth: 
Brattice: 

13  feet  long  and  over 
Under  13  feet  long: 
In  balea  or  rolls .  . 


Equipment,  Roadmaking— 
Consisting  of  carta,  dump 
cars,  dump  wagons,  en- 
gines and  boilers,  graders, 
plows,  road  machines, 
road  rollers,rock  crushers, 
scrapers,  stone-spreading 
wagons,  street-sprinUing 
wagons,  street  sweepers, 
tile  moulds  and  wheel 
barrows,  in  mixed  car 
loads 


tEliminate  items  7,  8  and  9 
I     page  26.    (See  itema  1&-30, 

mcl.,  page  M  of  Claaaifica- 
I     tion.) 

^Elinuuule   items  33  and  34. 
I     page  26.     (See  itema  5-8 

incl.,  page  2  of  this  Supple 

ment.) 


Specimen  Page  from  Canadian  "Freight  Classification. 

361 


3012 


TRAFFIC 


Class  9.  Live  stock. 

10.  Luinbcr  und  forest  products,  coal,  rough 
stoiie,  sand,  lime,  hay,  and  straw. 

As  examples  of  the  supplementary  classes  the  following 
may  be  quoted : 

4 — 1.  Aeroplanes,  wicker  baskets  not  nested. 
3 J — 1.  Canoes,  three  or  more  crated  together. 

8—1.  Aquariums,  boxed,  baseball  bats  hi  boxes. 
2i— 1.  Cutters,  single  or  crated,  over  84  inches  high 
and  less  than  72  inches  long,  actual  weight. 
D — 1.  Binders,  s.u.,  honev. 

IJ.  Strawberry  baskets,   nested;  perfumery  in 
cases. 

2Q.  quantity  differences.— The  Canadian  Classifica- 
tion, in  common  with  other  classifications,  recognizes  a 
difference  in  quantity  as  justifying  a  difference  in  rating. 
In  England  it  has  been  recognized  that  in  striking  a  rate 
a  railway  may  recognize  that  the  commodity  moves  in 
large  quantities.  But  in  Canada,  as  in  the  United 
States,  the  carload  is  taken  as  the  highest  unit  of  quan- 
tity. The  man  who  moves  thirty  carloads  is  not  to  re- 
ceive a  more  favorable  treatment  than  the  man  who 
moves  one  carload.  In  turning  at  random  the  pages  of 
the  Canadian  Classification  it  will  be  found  that  cotton 
piece  goods  are  rated  2  I..C.L.,  4  C.L.,  or,  to  take 
another  example,  canned  goods  are  3  L.C.L.,  5  C.L. 

The  L.C.L.  rating  is  for  one  hundred  pounds  or  up- 
wards. In  the  case  of  "smalls,"  or  shipments  under  one 
hundred  pounds,  no  matter  what  the  class  might  other- 
wise be,  the  charge  is  that  for  one  hundred  pounds  first 
class,  with  a  minimum  charge  of  83  cents.  The  railways 
take  the  position  that  on  account  of  the  bookkeeping  and 
handling  costs  incident  to  such  small  shipments  a  charge 


FREIGHT    t  LASSIFICATION 


ses 


OIllV 

in 


,.,r  one  hundred  inmnds  at  the  elass  rating  to  which  it 
IrloiiL's  would  not  be  adequate.  ,  ,      ^.       ■. 

1„  order  to  obtain  the  advantage  of  a  ear  lot  rating  it 
is  not  necessary  that  one  should  load  up  to  the  full  carry- 
•  ,K  capacity  of  tlie  car.  But  it  is  necessary  to  furnish  a 
minimum  weight.  . 

The  position  taken  by  the  railways  in  regard  to  mim- 
,„,„„  weights  is  put  succinctly  in  a  statement  made  by 
the  Chairman  of  the  Canadian  Freight  Association  in  a 
ease  before  the  board,  i.  e..  the  Canadian  Railway  Com- 
mission: 

Ml  articles  arc  provided  with  a  lens-than-carload  rating,  but 
V  those  which  are  generally  and  to  some  extent  forwardcl 
Straight  carload  quantities  are  given  the  carload  rating. 
In  order  to  entitle  a  shipper  to  the  lower  carload 
nainff  when  it  h  provided  in  the  classification,  the  rules  require 
tl.at  a  full  straight  carload,  subject  to  certain  mmnnum  weights 
which  are  designed  to  produce  adequate  per  car  revenue,  be 
forwarded  by  one  shipper  from  one  station  on  one  day  to  one 
coiisiffnee  and  destination.     ... 

Where   the  character  of  the   freight,   size  of  the  package, 
HKthod  of  packing,  weight  of  the  goods,  strength  or  fragihty, 
vu.  V  so  greatly,  it  is  impossible  to  fix  by  rule  a  mmimum  we.gnt 
d.ich  will  in  all  cases  exactly  correspond  with  (and  not  m  some 
cases  exceed)   the  actual  quantity  which  can  conveniently  be 
put  into  a  car.    It  is  impracticable  by  rule  to  confer  the  benefit 
of  the  carload  rate  without  the  use  of  a  minimum  weight      In 
the  case  of  heavy  coarse  freight,  the  shipping  public  find  no 
.htficulty  in  loading  up  to  and  even  in  excess  of  the  mmimum 
w.i-.ht      There  are  no  commercial  transactions  which  interfere 
with  this  being  complied  with.    In  the  case  of  light  bulky  freight, 
the  weight  carrying  capacity  of  the  car  is  disregarded,  and  the 
loading  capacity  generally  determines  the  minimum  weight,  but 
ahvays  subject  to  its .  application  resulting  in  a  fair  per  car 
revenue.     This   is  essential  in   order  to  prevent  the  necessity 


•'^64  TRAFFIC 

of  liauling  a  ligiiHy  loaded  car  and  to  obtain  economy  in  the 
use  of  equipment  and  yard  facilities.  A  le.ss-than-carloac>  con- 
signment is  charged  for  its  actual  weight  at  the  higher  less- 
than-carloa  '  rate,  unless  the  total  charge  exceeds  the  charge 
based  upon  tlie  carload  mininuun  weight  and  carload  rate,  in 
which  event  the  lower  charge  governs.  At  no  time  does  a  charge 
on  a  less-than-carload  lot  exceed  the  charge  for  a  carload  of 
the  same  class. 

The  classification  provides  that,  unless  otherwise  spe- 
cifically provided  for  in  the  classification,  the  minimum 
weight  in  box  cars  not  over  36  feet  6  inches  in  length  is 
to  be  as  follows,  actual  weight  to  be  charged  for  when 
in  excess  of  the  minimum — 

1st,  2nd  and  3rd  class OQ.OOO  lbs.  per  car 

4th,  5th  and  8th 24,000     "      "      " 

7th,  8th  and  10th 30,000    "      *'     " 

Or  specific  items  in  the  classification  there  may  be 
minimum  weights  differing  from  those  just  quoted.  To 
quote  a  few  examples:  lumbermen's  boats  and  batteaux 
have  a  tenth  class  rating,  with  a  minimum  of  20,000  lbs., 
while  boats  X.O.S.  (not  otherwise  specified)  have  a  sixth 
class  rating,  with  a  minimum  of  20,000  lbs.;  concrete 
spreading  carts  with  a  fourth  class  rating  have  a  mini- 
mum of  14,000  lbs.,  and  charcoal,  with  a  seventh  class 
rating,  has  a  minimum  of  24,000  lbs. 

21.  Car  measurements.— The  box  car  not  over  36  feet 
6  inches,  inside  measurement,  8  feet  6  inches  wide  and 
8  feet  high,  inside  measurement,  is  taken  as  the  stand- 
ard box  car;  but  as  the  car  increases  in  length  the  Cana- 
dian Classification  increases  the  minimum.  The  same 
thing  is  done  both  by  the  Oflficial  and  Western  Classi- 
fications. In  the  two  former,  the  increase  in  the  mini- 
mum does  not  increase  in  regular  gradation  as  the  length 
of  the  car  increases,  while  in  the  Western  Classification 


FREIGHT    CLASSIFICATION 


365 


the  rule  is  followed  in  the  case  of  light  and  bulky  goods 
„f  adding  for  each  foot  over  36  feet  inside  measurement 
3  ntr  cent  to  the  minimum. 

The  (juestion  of  the  increased  minimum  is  not  con- 
cerned with  increased  length  alone;    there  is  also  the 
nuestion  of  increased  height  of  the  car.    While  the  stand- 
ard box  car  IS  8  feet  high,  inside  measurement,  or  13 
feet  r»  inches  from  the  rails,  special  cars,  as,  for  example, 
furniture  and  automobile  cars,  are  higher.    There  is  at 
present  before  the  board  a  proposition  that  m  the  case 
„f  lijrht  and  bulky  goods,  the  cubical  capacity  of  the  car 
should  be  looked  to  and  a  minimum  fixed  on  it,  and  that 
tor  exerv  one  hundred  cubic  feet  over  twenty-five  hun- 
dred cubic  fe-t  of  containing  space  there  should  be  a 
percentage  addition.    The  Wisconsin  Railway  Commis- 
sion, in  dealing  with  the  3  per  cent  scale  of  the  West- 
ern Classification,  has  expressed  the  opinion  "it  would 
soeni  that  the  cubic  capacity  of  the  cars  is  a  better  basis 
for  ad  lusting  minima  than  length  alone." 

22.  'cost  of  C.L.  and  L.C.L.  shipments.-While  the 
placing  of  a  higher  rating  upon  an  L.C.L.  shipment  than 
on  a  C.L.  shipment  is  an  established  practice,  there  is  a 
,,uestion  as  to  whether  there  are  factors  so  differentiating 
these  two  traffic  movements  that  the  apparent  discrimi- 
nation is  not  "unjust."  It  may  be  said  that  the  small 
shipment  is  a  retail  transaction  while  the  large  is  a  whole- 
sale one.  But  the  distinction  looked  for  must  be  more 
fundamental. 

C  ar  lot  traffic  is  relatively  much  less  costly  to  handle 
tlian  less  than  car  lot  traffic.  In  the  former,  the  loading 
per  car  is  relatively  heavy,  thus  materially  reducing  the 
proportion  of  dead  weight  to  the  pay  weight.  Where  it 
is  loaded  and  unloaded  by  the  shippers,  as  compared 
with  the  less  than  car  lot  traffic,  it  involves  much  less  ex- 


366 


TKAFFIC 


pc?ise  in  the  way  of  station,  office,  and  other  services.  In 
Avestern  Canada,  the  Canadian  Pacific  estimates  the 
physical  cost  of  handling  L.C.L.  traffic  from  shed  door 
until  it  is  stowed  in  the  car  at  from  35  cents  to  $1.00  per 
ton.  The  further  service  in  connection  with  the  time 
it  takes  to  assemhle  a  car  must  be  considered.  At  Win- 
nipeg^ or  Calgary,  for  example,  cars  are  spotted  ever}- 
day  for  certain  sections  of  the  railway  and  for  certain 
places  on  the  railway.  The  car  stands  at  the  shed  all  day, 
then  goes  out  in  the  morning  on  the  way-freight  train. 

The  ^Visconsin  Commission  has  estimated  that  in  the 
State  of  AVisconsin  the  average  car  lot  loading  is  17  tons, 
while  in  the  case  of  less  than  car  lot  traffic  the  average 
loading  per  car  does  not  reach  6  tons.  It  then  continues: 

On  one  of  the  principal  carriers  in  the  Western  Classification 
territory  the  average  terminal  cost  per  cwt.  amounts  to  about 
2.3  cents,  when  the  loading  amounts  to  17  tons  per  car  and  to 
almost  5.8  cents  when  the  loading  amounts  to  7  tons  per  car, 
while  the  average  cost  of  moving  the  freight  between  the  stations 
amounts  to  about  0.26  mills  per  cwt.  when  the  car  is  loaded 
with  17  tons  and  to  about  0.44  mills  per  cwt.  when  it  is  loaded 
with  7  tons  of  freight.  On  these  bases,  for  a  haul  of  two  hun- 
dred miles,  there  is  a  difference  in  favor  of  the  carload  traffic 
that  amounts  to  about  7  cents  per  cwt. 

Summing  up  the  matter,  it  expresses  the  opinion: 
We  feel  quite  justified  in  saying  that  the  less  than  carload 
traffic  is  relatively  less  profitable  to  the  carriers  than  the  car- 
load traffic,  and  that  the  higher  rates  for  the  former  are  more 
than  offset  by  the  greater  cost  of  handling  it. 

The  difference  as  between  less  than  car  lot  and  car  lot 
ratings  is  justified  by  differences  in  cost. 

23.  Uniformity  in  Canada,— The  unsuccessful  at- 
tempts of  the  United  States  to  obtain  a  uniform  classi- 
fication applicable  throughout  the  entire  section  served 


FREIGHT    CLASSIFICATION 


367 


bv  the  railways  of  that  country',  is  indicative  of  the 
ailvantage  both  to  the  shipper  and  to  the  railway  of 
uniformity  of  practice.  While  in  Canada  there  is  one 
general  classification,  certain  modifications  must  be 
rtco^niized  which  in  effect,  in  certain  respects,  create  two 
jTcncral  classifications  and  one  minor  classification. 

On  the  White  Pass  and  Yukon  route,  connecting 
Skaguay  and  White  Horse,  shipments  are  governed  by 
the  Northern  Classification.  In  this  classification  there 
are  three  general  ratings.  A,  B  and  C,  A  being  the  lowest 
rating.  In  addition,  there  are  the  following  multiples 
of  these  classes,  h  h  U,  2,  24,  3  and  4  times  A. 

As  has  been  indicated,  the  Canadian  Freight  Classifi- 
cation is  built  up  on  fifth  class.  But  while  in  western 
Canada,  outside  of  the  Yukon,  the  principle  of  having 
ten  classes  is  followed,  the  method  of  building  is  dif- 
ferent. In  western  Canada,  when  the  Canadian  Pacific 
began  operation,  the  classification  which  was  adopted 
was  the  Joint  Northern,  which  was  at  that  time  used  in 
the  Dakotas  and  adjoining  United  States  territory.  In 
this  classification,  first-class  was  double  fourth.  There 
was  no  percentage  relation  as  to  the  intervening  classes. 
Later,  when  further  classes  were  added,  no  percentage 
basis  of  relation  of  the  classes  was  adopted ;  and  so,  while 
seemingly  uniform,  the  classification  in  western  Canada 
is  out  of  line  with  that  in  use  in  eastern  Canada. 

24.  Mixing  privilege. — In  dealing  with  the  question 
of  minimum  weights  it  was  for  the  moment  referred  to 
as  if  straight  carloads  of  a  single  commodity  were  alone 
involved.  But  in  addition  to  a  minimum  weight  made 
up  of  one  article  alone,  there  may  be  a  minimum  weight 
arrived  at  by  mixing. 

In  eastern  Canada  the  arrangement  as  to  mixing 
mav  be  summarized  as  follows : 


368 


TRAFFIC 


(a)  When  a  number  of  articles  of  the  same  class  in  car- 

loads are  tendered  on  one  day  by  one  consignor, 
destined  to  one  consignee,  the* quantity  being 
sufficient  for  a  carload,  they  take  the  rate  per  hun- 
dred pounds  of  the  class  at  the  higliest  minimum 
of  any  of  the  articles  so  carried. 

(b)  AVhen  the  articles  are  of  different  classes,  the  rale 

and  minimum  of  the  article  in  the  highest  class 
applies. 

(c)  In  a  mixed  carload  of  fifth  and  higher  class  freight 

having  a  minimum  of  less  than  20,000  lbs.,  a  min- 
imum of  20,000  lbs.  at  the  highest  class  rate  ap- 
plies. 

For  obvious  reasons,  there  are  in  dealing  with  certain 
commodities,  such  as  petroleum,  lubricating  oil,  gasoline, 
and  live  stock,  limitations  of  the  general  mixing  privi- 
lege. 

The  mixing  privilege  is  limited  to  articles  which  have 
a  distinctive  car  lot  rating,  which  means  that  in  the  ma- 
jority of  cases  less  than  car  lot  quantities  may  be  com- 
bined to  obtain  the  advantage  of  car  lot  rates. 

In  western  Canada,  however,  the  mixing  privilege 
is  limited  by  the  adoption  of  the  principle  of  trade  lists. 
The  classification  states  that  "articles  under  distinctive 
headings  will  not  be  taken  in  mixed  carloads  at  carload 
rates."  "Distinctive  headings"  as  set  out  in  the  classifi- 
cation are,  for  example,  agricultural  implements,  hard- 
ware, groceries,  etc.  The  same  provisions  apply  in  the 
west  as  do  in  the  east,  (a)  where  the  articles  are  of  the 
same  class,  (b)  where  the  articles  are  of  different  classes. 

25.  Effect  on  shippers  and  consumers.— The  effect 
of  this  is  that  there  is  a  much  wider  mixing  privilege 
east  of  Port  Arthur  than  west  of  it.  In  eastern  Canada 
the  system  redounds  to  the  advantage  of  the  consignee 


FREIGHT    CLASSI FICATIOX 


369 


who  cannot  take  a  straight  carload  of  a  particular  line 
of  ooods.  In  western  Canada,  the  rule  existing  re- 
dounds to  the  advantage  of  the  man  who  can  take  a 
straight  carload  of  a  particular  line  of  goods.  The  rule 
as  to  limitation  to  distinctive  headings  applies  not  only 
to  shipments  between  points  in  the  west,  but  also  to  ship- 
nictits  between  points  east  of  Port  Arthur  and  points 
west  thereof  and  vice  versa. 

The  difference  in  situation  as  bet  een  the  east  and 
the  west  in  this  respect  may  be  indicated  by  a  specific 
example.  A  mixed  carload  of  hoes,  anvils,  and  culti- 
vators is  possible  east  of  Port  Arthur.  In  western 
Canada,  tools  and  hand  farm  im])lements  are  in  the  hard- 
ware list  at  fiftli  class,  while  the  cultivators  fall  in  the 
agricultural  machinery  list  Avith  a  sixth  class  rating. 
Consequently,  on  such  a  shipment  from  an  Ontario  point 
to  a  point  west  of  Port  Arthur,  the  sixth  class  rating 
wdiild  apply  on  a  minimum  of  20,000  pounds  for  the  cul- 
tivators and  the  L.C.L.  rate  would  be  charged  on  the 
tools  and  hand  implements.  If,  however,  the  tools  and 
hand  implements  formed  the  bulk  of  the  shipment,  they 
would  move  on  a  fifth  class  rating  with  a  minimum  of 
24.()()()  pounds,  and  the  other  articles  would  move  on  an 
L.C.L.  rating. 

The  effect  of  this  is  that  in  respect  of  distributive 
husiness  there  really  are  two  classifications. 

This  situation  has  grown  up  as  a  result  of  a  compro- 
mise between  divergent  trade  interests.  In  the  classifi- 
es t  ion  of  1893  the  mixing  privilege  was  limited  by  the 
list  |)rinciple.  Various  modifications  were  subsequently 
luaih,'.  By  1897,  the  general  practice  established  was 
the  same  as  it  is  east  of  Port  Arthur  today.  In  1902, 
the  list  principle  was  adopted  generally.  In  1904,  an 
attempt  was  made  to  obtain  the  open  rule  for  Canada 

C-III— «4 


370 


TRAFFIC 


generally.  Instead,  there  was  worked  out  the  compro- 
mise which  gives  two  systems,  as  has  already  been  indi- 
cated. 

The  compromise  was,  in  the  main,  attributable  to  the 
increasing  importance  of  the  jobbing  centers  of  western 
Canada.  They  felt  that  the  open  mixing  system  would 
expand  the  distributing  business  of  eastern  Canada  in 
western  Canada,  and  they  took  the  position  that  this 
distributive  business  was  naturally  tributary  to  the 
western  jobbing  centers. 

The  complexities  introduced  by  jobbing  businesses 
and  their  bearing  upon  classifications  and  the  mixing 
privileges  thereunder  are  illustrated  by  recent  develop- 
ments. The  Boards  of  Trade  of  Calgary,  JNIoose  Jaw, 
AVeyburn,  Lethbridge,  Saskatoon,  and  Regina  desire  a 
further  modification  of  the  rule  as  to  mixing  as  it  now 
applies  west  of  Port  Arthur.  They  point  out  that  job- 
bing centers  are  now  established  at  central  points  in  the 
Provinces  of  Manitoba,  Saskatchewan,  and  Alberta,  and 
contend  that  reasonable  protection  should  be  given  to 
these  centers  to  do  the  business  naturally  tributary  to 
such  points.  At  present,  shippers  of  small  lots  may 
combine  their  shipments  and  secure  carload  rates  on 
what  would  otherwise  be  carried  at  broken  lot  rates.  In 
the  case  of  groceries,  mixtures  are  permitted  on  over 
300  articles  running  from  alun  to  washtubs.  This,  it 
is  claimed,  is  unfair  to  the  western  wholesale  merchants. 
It  is  admitted  that  there  may  have  been  some  justifica- 
tion at  an  earlier  date  for  maintaining  carload  rates  to 
retailers.  It  is  contended  that  now,  however,  there  is 
"no  further  necessity  for  violating  the  principle  of  giving 
to  the  purchaser  of  a  carload  all  the  protection  that  tlie 
Railway  Classification  and  tariffs  intended  he  should 
have.    At  present  it  is  possible  for  the  shipper  of  one 


FREIGHT    CLASSIFICATION 


371 


package  to  secure  as  low  a  rate  as  the  shipper  of  any 
nuinbcr  of  carloads."  It  is,  therefore,  contended  that 
tlie  following  rearrangements  should  be  made:  carload 
rates  should  be  confined  to  carload  quantities  of  one  com- 
modity or  of  conmiodities  of  an  analogous  character; 
that  the  minimum  weight  for  each  class  of  commodity 
should  reasonably  approximate  the  carrying  or  cubical 
capacity  of  a  standard  car  with  due  regard  for  the  mar- 
keting conditions  for  the  articles  in  question;  that  the 
present  basis  of  trade  lists  should  be  abolished  and  car- 
load rates  applied  only  on  carload  quantities  of  one  com- 
modity, or  one  or  more  commodities  of  an  analogous 
character. 

As  will  be  seen  in  dealing  with  the  question  of  rates, 
the  matter  of  distributive  business  and  the  settlement  of 
distributive  areas  is  a  question  of  balancing.  Each  job- 
bing center,  while  contending  for  the  geographical  ad- 
vantage of  its  situation,  is  chary  in  defining  the  limits 
of  its  si)here  of  influence.  And  thus  while  merchants  of 
the  west  are  contending  for  a  rearrangement  of  the 
mixing  rule  which  will  give  them  the  longest  possible 
haul  in  carloads,  and  a  distributive  business  out  on  the 
short  hauls  in  less  than  car  lots,  points  such  as  Van- 
couver, Fort  William,  and  Montreal  are  opposed  to 
tlie  further  modification  which  has  been  outlined.  Mon- 
treal, for  example,  desires  that  the  open  rule  should 
iipj)ly  generally  throughout  Canada. 

20.  Factors  affecting  classification. — Classification,  as 
Conunissioner  Clark,  now  Chairman  of  the  Interstate 
Commerce  Commission  in  the  United  States,  has  aptly 
said: 

Is  not  an  exact  science  nor  may  the  rating  of  a  particular 
article  be  determined  alone  by  the  yardstick,  the  scales  and  the 
dollar.     The  volume  and  desirability  of  the  tniffic,  the  hazard 


372 


TRAFFIC 


of  oirriu^c,  iiiul  the  prolmbility  of  misrepresentation  of  the 
article  arc  large  factors  of  prime  importance  in  classification. 
At  best  it  is  l)ut  a  grouping.     .     .     . 

Consideration  of  the  earlier  examples  of  classification, 
to  which  reference  has  been  made,  indicates  that  at  least 
three  determining  factors  were  considered  —  space, 
weiglit,  and  value.  It  was  considered  that  where  an 
article  |^acked  soliUIy  into  a  comparatively  small  space 
it  was  projier  to  make  a  lower  charge  than  when  the  same 
M  eight  took  up  a  much  larger  space.  And  there  was 
also,  in  a  somewhat  crude  way,  an  attempt  to  take  into 
consideration  the  basis  of  value  or  ability  to  pay.  To- 
day, while  there  are  many  refinements  of  classification, 
these  three  factors  are  still  of  importance. 

While  the  scope  of  the  classification  has  become  more 
inclusive  as  business  has  expanded,  and  while  the  ratings 
have  at  the  same  time  become  more  differentiated,  it  is 
impossible  to  have  a  cla'^s  for  each  article.  Consequently, 
the  class  groupings,  while  intended  to  embrace  analogous 
articles,  do  not  embrace  articles  necessarily  identical  in 
point  of  value,  cost  of  carriage,  or  other  factors. 

27.  Value  of  the  article— The  value  of  the  article  is 
recognized  as  an  important  factor.  From  the  stand- 
point of  cost  of  service,  it  does  not  appear  justifiable  to 
class  gloves,  whalebone,  thread,  and  umbrellas  in  first 
I..C.L.,  while  common  brick,  concrete  building  blocks, 
and  coal  are  classed  fourth  L.C.I..  When  the  C.L. 
ratings  are  considered  it  will  be  found  that  the  first 
group  of  commodities  extracted  from  the  dry  goods  list 
have  an  any-quantity  rating,  while  common  brick,  stone, 
building  blocks,  and  coal  have  a  tenth  class  rating  C.L. 

If,  however,  an  attempt  w^ere  made  to  arrange  the 
ratings  on  the  basis  of  the  cost  of  service,  assuming  that 
this  could  be  accurately  established,  the  result  would  be 


FREIGHT    CLASSIFICATION 


373 


tiiat  tlie  low  grade  commodities  which  are  placed  in  tenth 
class  ^vould  be  able  to  stand  only  a  short  haul  move- 
mint.  Under  these  circumstances,  such  conunodities 
uouKl  be  locally  monopolized  with  a  resultant  disadvan- 
tafje  to  the  consumer.  As  a  result  of  this,  value  is  recog- 
nized as  a  factor  and  ability  to  pay  places  certain  articles 
ill  the  first  class  and  others  in  the  tenth. 

In  so  arranging,  cognizance  is  taken  of  the  fact 
whether  the  articles  are  in  the  rough,  partly  finished  or 
rinished  state.  ]Millstones  in  the  rough  are  classed 
L.C.L.  third,  C.L.  fifth;  when  finished  they  are  classed 
second  and  fourth.  And  while  dimension  or  building 
tone  in  tlie  rough,  sawn  or  dressed,  not  car^'ed,  is  fourth 
aiul  tf-nth,  it  is  first  and  fifth  when  carved  or  lettered, 
(rated  or  boxed.  Or,  again,  difference  in  quality  is  rec- 
ouni/ed.  Thus,  while  brick,  common,  fire,  vitrified  and 
scoiia  blocks  are  rated  fourth  and  tenth,  enameled  and 
'^I'Mtd  brick  is  third  and  fifth. 

In  dealing  with  the  classification  of  blaugas,  the  board 
found  that  the  ratings  of  second  and  fourth  were  reason- 
able, this  being  based  on  a  consideration  of  the  article  and 
of  its  ability  to  pay  as  compared  with  the  lower  ability  to 
pay  of  the  articles  classed  third  and  fifth,  which  were  the 
ratings  asked  for.  So,  also,  where  a  carload  rating  was 
asked  for  on  cigars,  which  have  an  any-quantity  rating 
of  tirst  class,  it  was  held  that  as  cigars  were  luxuries  the 
aiiy-(iuantity  rating  was  not  unfair.  A  similar  position 
was  taken  in  dealing  with  an  application  to  reduce  the 
rating  of  cutglass  from  double  first  to  first  class. 

In  using  value  as  a  basis,  there  is  considered  not  only 
the  ability  to  pay,  but  also  the  market  value  of  the  article. 
That  is  to  say,  where  an  article  has  a  high  market  price, 
the  higher  rating  has  but  a  slight  percentage  effect  upon 
the  market  demand.    But  in  the  case  of  articles  of  wide 


374 


THAFFIC 


dc^imnd  and  conse(,i,ently  lower  market  price  the  higher 
rating  would  add  such  a  per«.ntage  to  the  market  X 
that  the  demand  Mould  be  curtailed.  Consequently  « 
a  matter  o  self-interest,  the  ratings  must,  within  ceL" 
broad  hm.  s.  recognize  ability  to  pay  as  a  factor. 

28.  Bu.k  and  rccight.~As  the  railways  in  trans- 
portmg  freight  are  selling  car  space,  what  can  be  packed 
in  a  firiven  space  is  important.  There  must  be  Lsid- 
ered  whether  the  articles  are  K.D.  (knocked  down)or 
S.U.  set  up).  Sheaf  carriers.  S.U..  are  D-1.  niile 
K.D  they  are  second  class,  these  ratings  being  for 
J^.t^.U;  while  lumber  wagons  are  first  class  S.U.  and 
^cond  class  K.D.    Another  consideration  is  whether  th 

attn  Z^'T '"  ^"^'^''  ''"^^"^"« '"  *»^'«  the  consider- 
ation  whether  they  are  crated  in  boxes  or  otherwise 
packed.    A  vanety  of  ratings  will  be  found  based  on  th" 

fhffnir- "  ^'""uu^  '^^^"^  ^"  '^'  *^"  «»d  «n^«re  list 
the  followmg  will  be  found: 

Tinware,  N.O.S.:  L.C.L. 

Loose.  O.R.D. . .  ^ 

Not  nested,  in  crates,  boxed  or  barrels . .  *1 

Nested,  in  crates,  boxes  or  barrels. . .  2 

Nested  solid,  in  crnJ  ns,  boxes  or  barrels.  .3 

buS*t'/""''tr*'''"'  ^""'"«^  ""^^^  «^^  heading  "^^f 
bulk  and  weight  are  whether  the  commodities  are  in 

w;7.rf'«°'r  ^h^P'"^"*^'  «nd  questions  of  minimum 

Jftb  v>l.  ^""^  '^''"""^^  *^"^^  ^  '«*'"^  °^  «^«>"d  and 
no  .HfT.  ^?^?™"™  «f  20.000  pounds.  It  may  be 
noted  that  while  the  normal  fifth  class  minimum  is  24,000 

anTbnV  ^"^^  r "'  °"  "^^°""*  °^  '^'^  being  light 

'0000^'"°'™'"^  have  difficulty  in  loading  up  to  the 
-so.ooo  minimum. 

29.  Risk  attached  to  carriage.-A  railway  is  an  in- 
surer, and  so  the  risk  attaching  to  the  carriage  of  the 


C.L 

6 
5 
6 

5 


FHEIGHT   CLASSIFICATION 


375 


g.M)tls  is  considered.    Scattered  throughout  the  classifica- 
tion will  be  found  the  following  notations: 

ORH     =  Owners  riJi  of  breaUge.  O.R.F.      -Owner*.  rUk  «rf  fire. 

()U(       ^       "  "       chafing.  O.R.L.       -  «»■•■ 

OHl)     =       "  "       damage.  O.R.Lkge.-      "  leakage. 

OK  l)it  -       "  "       deterioration.       O.R.S.       -      "  «fting. 

O.R.W. -Owner'*  risk  at  weather. 

When  these  owner's  risk  notations  appear  in  the  classi- 
fication, the  railway  is  relieved  from  the  risks  necessarily 
incidental  to  the  transportation  of  the  article  so  noted. 
But  it  is  not  relieved  from  liability  for  any  loss  or  dam- 
ajje  which  may  result  from  any  negligence  or  omission 
(.f  the  railway,  its  agents,  or  employees.  If  a  shipper 
(lots  not  wish  to  ship  at  "owner's  risk,"  then  the  articles 
proffered  by  him  will  be  carried  subject  to  the  terms  of 
the  Standard  Bill  of  Lading,  but  subject  to  the  addition 
of  t\venty-five  per  cent  to  the  rates  applying  when  the 
{roods  are  carried  at  "owner's  risk." 

Particular  examples  of  the  classification  considering 
the  risk  attending  transportation  are  plentiful.  Green 
vegetables  O.R.Det.,  in  baskets,  bags  or  crates,  are  first 
thiss  L.C.L.,  while  evaporated  or  desiccated  vegetables 
are  third  class  L.C.L.  in  bags,  boxes,  or  barrels.  The 
lating  is  aflFected  by  the  question  of  whether  the  com- 
modity is  liquid  or  dry.  Liquid  shellac  in  tins,  boxed, 
is  first  and  third,  while  dry  shellac  is  second  and  fourth. 
Ill  the  rating  of  acids,  there  has  to  be  taken  into  consid- 
eration not  only  the  risk  of  handhng  not  only  as  to  the 
floods  themselves,  but  also  as  to  other  property.  Spe- 
cial care  must  be  taken  in  handling  them. 

ao.  Facilities  and  equipment  required. — While  the 
iiatine  of  the  facilities  required  has  an  important  bearing 
oil  the  rate  it  also  affects  the  conditions  attaching  to  the 
classification  rating.  Apples  and  potatoes  must  be  pre- 
l)aid  in  winter. 


il70 


THAI  Fit' 


l.i  urrniiKinK  cl«.s.si  Heat  ion,  the  matter  of  tonnage 
movement  ks  in.porlant.  ^VI.ile  low  gracJe  commodi  S 
2f  have  a  Ion;  rating  in  onler  to  move  at  alUhe  ^^ 
that  a  ecnnnuuhty  moves  in  lar^e  hulk  faeilitates  the 
1"H'  rat.nff  arrangement.  The  c.uestion  of  c^mpetit^ 
of  markets  .s  «!.„  a  faetor.  So,  also,  is  the  com^  it" 
effect  exercised  hy  alternate  water  rontes 

In  dealing  with  classification,  the  question  of  anaW 
p  ays  an  important  part.  A  change  in  the  rating  of  fn 
article  will  create  a  demand  for  a  change  in  a  Lple- 
nientary  commo<lity.  ^Vhile  alun.inum  wire  and  cZr 
wire  are  dKstmet  commodities,  they  are  hoth  complenT 
ta.y  an<  competing;  and  so  Me  find  them  both  with  a 
-tmg  of  second  and  fourth.  The  lists  of  tl.  cla^:!! 
t.on  have  grown  u],  out  of  the  varied  needs  of  business 
and  to  disregard  these  is  to  upset  business.    In  the  gro-' 

but  we  also  find  glue  and  tobacco.    In  1911.  the  Cana- 
dian freight  Association,  acting  for  the  Canadian  rail- 

bZo  Tr      ".^'^«"'«"^'<^"»-"t  "<•  tbe  ratings  on  to- 
bacco    The  most  important  j,art  of  this  rearrangement 
was  the  substitution  of  a  fourth  class  carload  rating  for 
the  exiting  fifth  class  rating.    In  evidence,  it  was  sho;" 
that  84  per  cent  of  the  output  of  plug  tobacco  of  the  Do- 
mimon  Tobacco  Company  and  over  60  per  cent  of  its 
cut  tobacco  was  disposed  of  to  the  grocery  trade     The 
Ontario  Wholesale  Grocers'  Gui/testiL  thai  from 
HO  i,er  cent  to  8.5  per  cent  of  the  tobacco  sold  was  handled 
by  grocers  and  that  the  tobacco  business  was  about  10 
per  cent  of  the  total  trade  of  the  grocers.    The  result 
of  the  proposed  change  would  have  been  a  dislocation  of 
business,  since  tobacco  and  groceries  would  no  longer 
have  been  able  to  mix  on  a  fifth  class  rating.    The  board 
'"  ruling  on  the  matter  said:  'In  view  of  the  dislocation 


FKKIGHT   CLASSI I'K'ATION 


S77 


uhicli  tlic  proiKised  increased  ratings  would  cause,  it 
Hoiihl  \Hi  necessary  for  tlw  railways  to  make  out  a  strong 
artiriiiative  case.  This  they  have  not  done  .  .  .  and 
tlitir  application  should  be  dismissed." 

It  is  impossible,  without  going  into  tedious  detail,  to 
iiiiimcrate  all  tlie  factors  going  into  the  determination 
„f  elasslHaition  ratings.  As  a  fairly  compendious  sum- 
mary there  may  be  quoted  the  following  extract  from 
the  Animal  Report  of  the  Interstate  Commerce  Cora- 
inisMoii  for  1897: 

(tliirc  is  considered)  whether  commodities  are  crude,  rough  cr 
tiiii>litil :  licjuid  or  dry ,  knocked  down  or  set  up ;  loose  or  in  bulk ; 
iu"<ti(l  or  in  boxes  or  othcrw  ise  packed ;  of  vegetables  whether 
jrriiii  or  dry,  desiccated  or  Evaporated;  the  market  value 
aiul  shippers'  representations  as  to  their  character;  the  cost  of 
sirvlcc,  length  anil  duration  of  haul ;  the  season  and  manner  of 
^liipnunt :  the  space  occupied  and  weight ;  whether  in  carload 
or  less  than  carload  lots ;  the  value  of  annual  shipments  to  be 
calciiliitid  on;  the  sort  of  car  required,  whether  flat,  gondola, 
box,  tank,  or  special;  whether  ice  or  heat  must  lie  furnished; 
the  speid  of  trains  necessary  for  perishable  or  otherwise  rush 
j(()ods ;  the  risk  of  handling,  either  to  the  goods  themselves  or 
othtr  property;  the  weights,  actual  and  estimated;  the  car- 
riers' risk  or  owners'  release  from  damage  or  loss. 

:n.  Classification  in  operation  in  Canada. — The  Rail- 
way Act  provides  that  the  railway  shall  keep  on  file  at 
its  stations  where  freight  is  received  and  delivered  a  copy 
of  the  freight  classification,  or  classifications,  in  force 
upon  the  railway,  for  inspection  during  business  hours. 
The  board  is  given  wide  powers  in  dealing  with  the  classi- 
fication. These  are  set  forth  in  Section  821  of  the  Rail- 
way iVct,  which  provides : 

The  tariff  of  tolls  for  freight  traffic  shall  be  subject  to  and 
governed  by  that  classification  which  the  Board  may  prescrit>e 


378 


TRAFFIC 


or  authorize,  and  the  Board  shall  endeavor  to  have  such  clasMfi- 
cation  uniform  throughout  Canada,  as  far  as  niny  be,  having 
due  regard  to  all  proper  interests.  The  Board  may  make  any 
special  regulations,  terms  and  conditions  in  connection  with  such 
classification,  and  as  to  the  carriage  of  any  particular  com- 
modity or  commodities  mentioned  therein,  as  to  it  may  seem 
expedient.  The  company  may  from  time  to  time,  with  the  ap- 
proval of  the  Board,  and  shall,  when  so  directed  by  the  Board, 
place  any  goods  specified  by  the  Board  in  any  stated  class,  or 
remove  them  from  any  one  class  to  any  other,  higher  or  lower 
class.  Provided  that  no  goods  shall  be  removed  from  a  lower 
to  u  higher  chuss  until  such  notice  as  the  Board  determines  has 
been  given  in  the  Canada  Gazette. 

The  classification  is  revised  from  time  to  time.  It  is 
issued  at  irregular  intervals.  The  issues  down  to  date 
have  been  as  follows : 


Xo.  1.- 
Xo.  2.- 
Xo.  3.- 
Xo.  4.- 
Xo.  5.- 
Xo.  6.- 
Xo.  7.- 
Xo.  8.- 


-Jan.  1,  1884. 
-June  1,  1884. 
-April  1,  1885. 
-May  10,  1886. 
-May  1,  1888. 
-April  15,  1889. 
-Feb.  10,  1890. 
-Oct.  1,  1891. 


Xo.  IC— March  1,  1913 


Xo.  9.— June  1,  1893. 
Xo.  10. — Jan.  1,  1896. 
Xo.  10a.— Sept.  1, 1897. 
Xo.  11. — Jan.  1,1900. 
Xo.  12.— May  1,  1903. 
Xo.  13.— Sept.  1,  1907. 
Xo.  14.— Jan.  1,  1909. 
Xo.  15.— Xov.  15, 1910. 


Between  issues  supplements  are  issued  to  take  care  of 
changed  ratings. 

While  the  Board  of  Railway  Commissioners  for 
Canada,  po])ularly  spoken  of  as  the  Railway  Commis- 
sion, has  power  to  initiate  changes  in  classification,  it 
normally  does  not  act  of  its  own  initiative,  but  on  com- 
plaint. The  initiation  of  the  classification  or  of  a  sup- 
plement thereto  is  in  the  hands  of  the  Canadian  Freight 


FREIGHT   CLASSIFICATION 


379 


Association,  acting  for  the  railways,  and  more  particu- 
larly the  Advisory  Committee  thereof. 

As  has  heen  seen,  the  increased  ratings  have  to  be  pub- 
lished in  the  Canada  Gazette.  The  board  by  its  order 
of  January  18,  1909,  provided  that  in  filing  changes 
of  classification  this  material  should  be  submitted  in 
proofsheets,  giving  a  list  of  the  articles  not  previously 
provided  for  which  it  is  proposed  to  add  to  the  classifica- 
tion and  giving  the  ratings  for  these  articles.  Further, 
it  was  directed  that  information  should  be  given  as  to 
the  proposed  advances,  reductions,  or  other  changes  in 
rules,  ratings,  or  minimum  iveights.  In  making  applica- 
tion as  to  changes,  it  is  required  that  the  reasons  should 
he  set  out.  As  an  example  of  reasons  given,  the  foUow- 
\wr  dealing  with  "Lath,  iron  or  steel,  in  bundles,  crates 
or  boxes,"  may  be  referred  to: 

This  material  has  several  uses,  chief  of  which  is  for  plastered 
walls.  In  this  it  takes  the  place  of  expanded  metal  or  wooden 
lath.  Coming  in  competition  with  expanded  metal  of  about 
the  same  value  and  transported  under  the  same  general  condi- 
tions, there  should  be  no  difference  in  the  ratings,  and  3d  class 
L.C'.L.  seems  reasonable  and  should,  we  think,  be  permitted. 

The  Canadian  Freight  Association  is  required  to  sub- 
mit proof  copies  of  proposed  changes  which  may  be  for- 
warded to  interested  parties  for  their  consideration.  For 
example,  in  connection  with  the  consideration  of  Supple- 
ment Xo.  2  to  Classification  16,  proof  copies  were  sent 
in  addition  to  the  Canadian  ^lanufacturers'  Associa- 
tion, to  the  Ontario  Grocers'  Guild,  and  to  eighteen  other 
trade  bodies,  so  that  their  representations  as  to  the  effects 
of  the  proposed  changes  could  be  considered. 

Instead  of  dealhig  with  the  classification  after  it  is 
made,  as  does  the  Interstate  Conunerce  Commission,  the 
hoard  may  be  said  to  participate  in  its  making.    After 


380 


TRAFFIC 


he  representations  are  received  from  the  various  trade 
boches  a  .  usual  to  arrange  a  conference  between   h 
railways  and  the  representatives  of  the  trade  organi  a 
jons^    A    this  conference  the  Chief  Traffic  Officer  of 
the  board  ,s  also  present.     The  matters  at  issue  ar 
discussed  an<l  an  attempt  is  made  to  arrive  at  Icone 
sion      The  Chief  Traffic  Officer  reports  to  the  boa 
which  deals  with  the  unsettled  questions,  if  there  a^e 
any.    \\  hen  this  has  been  done  an  order  of  the  board  is 
ZatL  ''""'"'^  t^^e  coming  into  effect  of  the  classi- 

ficfttn^t'  ^^«*«/?^«/io«  and  complaints.-Fahe  classi- 
fication  of  .re.ght,  either  by  a  railway  or  if.  emplovees, 
«i  by  a  consignor  or  consignee,  with  a  view  either  to  give 

Zlu  !'  '^"■''- ^'  °^  ^"°^^  "*  ^°^^'«-  «^«»  tbe  rates 

legally  m  force,  ,s  punishable  for  each  offense  bv  a 

penalty  not  exceeding  $1,000  and  not  less  than  $100 

i^rom  time  to  time  an  individual  may  complain  of  ilie 

elassification  as  fixed.    For  example,  a  manufacturer  of 

explosives  desired  paraffin  wax  to  be  given  a  ratine 

imder  chemicals     He  made  application  to  the  Advisorv 

didToT  "  fi !'"  ''T''"  '''''^'''  ^---*-"'  -h-h 

to  tbeh       ,  H       ''""^^  '"^  '"^  ^^^"^^*-    B.y  application 
to  the  board  the  matter  was  set  down  for  hearing  and  a 

gmntr  ""  ^""  *^'*  *''  '"'"^^  ^^*^"^  «'-"^d  ^ 
Since  classification  is  tied  up  with  rate-making,  and 
since  the  changing  of  an  article  from  one  class  to  another 
s  equivalent  to  a  change  in  the  rate,  it  is  essential  that 
anj  organization  regulating  rates  should  have  an  effi- 
cient  control  of er  classification  as  well. 


CHAPTER   III 


FREIGHT    RA'iES 


IV.].  Importance  of  freight  traffic.— In  Ihe  period  be- 
tween October  1,  1912,  and  September  30,  1913,  there 
were  tiled  with  the  Board  of  Railway  Commissioners  for 
Canada,  81,076  tariffs.  In  the  fiscal  year  ending 
yUwch  31,  1913,  the  tariffs  filed  totaled  76,058.  Of 
ti)ese,  49,200  were  freight  tariffs.  That  is  to  say,  164 
freight  tariffs  were  filed  e^  ery  working  day.  These 
tariffs  are  concerned  not  oniy  with  traffic  lying  wholly 
vitliin  Canada,  but  also  wth  the  transit  business  in 
vhieh  both  Canada  and  the  United  States  participate. 
The  tariffs  vary  in  size  from  a  transcontinental  tariff, 
with  its  187  pages,  to  a  supplement  of  a  single  sheet. 

In  a  new  country  such  as  Canada,  where  a  sparse 
I)()l)ulation  is  spread  over  a  large  territory,  the  receipts 
from  freight  traffic  largely  outrank  those  from  passenger 
liusiness.  If  the  ma.Is,  express,  baggage  and  parlor  car 
receipts,  which  total  about  4  per  cent  of  the  gross  earn- 
iiios,  are  included  in  the  passenger  total,  the  following 
tahular  summary  is  available : 


WW 
Per  Vent 

Passenger  service 30.44 

Froighl 67. .'?4 

Station  and  train  privileges,  etc.  ..^{> 

Telegraph,  rent.s  an  J  other  .sources      1  63 


1911 

Per  Cent 

30  no 

67.07 

44 

1.59 


1912 

Per  Cent 

29.65 

68.35 

.49 

1.51 


That  is  to  say,  in  Canada,  for  every  dollar  earned  from 
]j;issenger  business  $2.60  were  earned  from  freight 
l)iisiness. 

During  the  period  from  1902  to  1908,  the  Canadian 

381 


■^**  TRAFFIC 

Pacific  added  u  freight  cars  i>er  ,1,,,  , 

every  day,  and   ,   iLmot   e  everv  \lr7«"  ™' 

the  period  between   1909  and  T97T   !  ,*^''    '" 

Canada  have  added  0,2  llZtive!9»fir  ""'""■"  "' 

and  30,3,0  freight  ears  t„  t^^r^^.^^rT"'^' 

the  years  1911  and  1012:  ^^"'Pnient  placed  in 

^-""^-^ ■ ::  tiS     JS     ??     'J?     I    JS 

Tlie  freight  cars  ordered  in  lOio  h,,  fi,  *.  '  "" 
;vays  were  «,,„,  t„  an  addition  f  '  ":"**"  I' 
f.e,ght.car  e„.„p„,ent  then  in  nse  on  ail^an^ "r" ! 

In  Canada,  in  tl.e  period  of  loio  to  1912  ih. 

earnings  from  freight  increased  hv  07  ^'"'' 

tonnage  and  mileage  service  n^fom  7  T';'"*'     '^''^ 

of  what  the  railways  a,  e  doTnrir  \^  "  '"'^^"''^ 

following  table  putsX  nTttr  ^a's^  '  ^""  *'^ 

1  le  matter  m  a  summary  manner: 

Average  haul,  miles jsf^  .^f*  -'Wfl  /9/0         ^9^^ 

Average  tons  per  train. . . .  ;   S  gn  ll*!  21 1  20O  m 

Average  camper  train. ...  0  92       Jr  ^  *V^  ^11  305  |i? 

Average  tons  per  car S.^?        Jg  2  9'!  J?  1.^       '«  ««  ^^ '^ 

T-I        •  ''^  '3       10.91  17  87 

In  the  period  in  n„.ct         1  ""^  '''^'*^^"  ^^''^^^' 

thirty  tons  canacitv  if      n  .  '"^  *''^  ^^'^^''^^^  ^«^  «* 

"f  lOls/ll  pert';  *;""  '"  ""*^^  *^«t  «"  the  figures 
average  empir  '  ''''^*^'^"^  "^P^^^  -«^  «"  the 

34    Mtcy,,y  r«^r.9  o/  ;/w/V^;-*«/  interest      Th.  f      i 
mental  part  transportation  plavs  in  allTf  7  T'^' 

^^reat  importance  of  freight  traffi  ^'n  *'"'  '"^  ^'^^ 

^"^  traffic  m  a  new  country.  Ins 


FREIGHT    RATES 


383 


caused  much  discussion  as  to  the  proper  basis  of  rates, 
and  especially  of  freight  rates.  While  certain  phases  of 
competition  have  effect  in  railway  transportation,  there 
are  also  limitations  of  competition.  In  a  sense,  this  is 
becoming  more  and  more  true  of  all  modern  industry, 
and  the  easy-going  ideas  as  to  the  pervasive  effects  of 
competition  which  developed  at  a  time  when  industry 
was  not  organized  on  a  large  scale  and  large  investments 
of  capital  were  uimecessary,  are  now  being  shocked  into 
readjustment. 

In  the  case  of  the  railway,  its  service  is  as  fundamental 
in  modern  industrial  life  as  electric  light  and  water  serv- 
ices and  street  cars  are  in  the  routine  of  the  city  dweller. 
Aisy  interference  with  the  efficiency  of  the  transporta- 
tion system  is  .».  far-reaching  consequence.  The  large 
mass  of  the  people  are  in  one  way  or  another  affected  by 
the  transport  of  commodities  on  the  railway.  Few, 
nowadays,  lead  the  hermit  life.  Not  onlj'^  are  we  de- 
pendent on  the  railway  in  the  normal  distributive  process, 
1)11 1  we  are  greatly  dependent  on  it  in  our  maladjusted 
distributive  organization  which  is  characterized  by  wastes 
of  transportation.  When  we  ship  Eastern  Townships 
butter  to  Vancouver  Island  and  New  Zealand  butter  to 
Ottawa,  New  Zealand  poultry  and  mutton  to  the  inte- 
rior valleys  of  British  Columbia,  and  eggs  from  Ontario 
to  llegina,  it  is  but  little  wonder  that  the  freight  rate 
elicits  active  discussion. 

.'{.).  Competition. — Not  only  is  the  rate  a  matter  of 
wide  interest,  the  nature  of  the  railway  transportation 
business  is  also  important.  In  a  letter  which  Leland 
Stanford  wrote  to  the  San  Francisco  Chamber  of  Com- 
merce in  1873,  he  said:  "Whenever  undue  profits  upon 
an  investment  in  railroads,  or  any  other  corporate  prop- 
erty accrue,  other  capital  will  always  be  found  to  enter 


384 


TRAFFIC 


nito  the  same  business  to  share  such  profits,  and  by  com 
petition  to  re(h,ce  them  to  a  legitimate  standard."    On 
he  other  Jiand,  J.  J.  Hill,  in  his  evicienee  l,efore  the 
interstate  Commerce  Commission  in  1902,  said-  "Com 
petition  d.)es  not  lower  rates;  on  the  contrary,  it  advances 
them      In  the  North  A\'est,  where  for  twenty  years  the 
Northern  Pacific  and  the  Great  Northern 'have  been 
at  peace,  where  one  road  has  agreed  with  the  other  on 
rates  and  maintained  the  .-.greement.  rates  are  lower  than 
111  any  other  part  of  the  country." 

Railways  are  not  operating  in  a  frictionless  economic 
ether,  as  Stanford  naively  suggested.    They  are  forced 
by  their  nature  to  come  into  some  kind  of  Relationship 
A  dry  goods  merchant,  dealing  with  his  customers,  is 
not  dependent  upon  the  other  merchants  concerned  in 
local  trade.     He  may  do  more  than  a  local  trade  with- 
out demanding  any  co-operation  with  other  merchants 
It  is  true  that  the  pursuit  of  his  trade  demands  a  co-oper- 
ation  with  the  wholesale  merchant.     But   within  the 
hmits  of  his  retail  business  his  relationship  to  other  mer- 
chants is  not  one  of  co-operation,  but  of  competition. 

30.  Compared  tcith  mercantile  and  manufacturing 
husiness^A  merchant  must,  of  course,  be  prepared, 
withm  limits,  to  supply  the  goods  demanded  by  his  cus- 
tomers, and  when  they  are  demanded.     A  railway  is 
engaged  in  selling  services,  and  readiness  to  serve  is 
therefore  essential  to  its  business.     A  merchant,  while 
he  must  be  ready  to  serve,  has  the  opportunity  of  aci- 
nisting  his  stock  to  seasonal  demands,  and  in  ^o  doin- 
he  has  the  opportunity  to  turn  his  capital  over.    A 
manufacturer  may  conceivably  accumulate  a  surplus 
stock  of  goods  to  meet  a  later  demand.     It  is  patent 
that  a  railway  cannot  create  service  in  advance  of  de- 
mand.    It  has  to  be  prepared  to  provide  service  when 


FREIGHT   RATES 


S85 


and  how  demanded.  This  readiness  to  serve  is  repre- 
sented in  locomotive  and  freight  car  units. 

A  striking  example  of  this  is  afforded  by  the  western 
grain  movement.  The  grain  begins  to  move  about  two 
and  a  half  months  before  the  close  of  navigation  on  the 
(ireat  Lakes,  and  every  effort  has  to  be  made  to  get  the 
grain  forward  to  Fort  William  and  Port  Arthur.  Con- 
sequently the  railways  have  to  be  ready  to  meet  a  peak 
load  in  a  short  period  of  time.  On  September  29,  1913, 
the  Canadian  Pacific  handled  in  and  out  of  Winnipeg 
5,014  cars  of  grain.  On  the  same  date  thirty-eight 
trains  of  grain  were  dispatched  from  Winnipeg  in  ten 
hours,  or  an  average  of  one  train  every  sixteen  minutes. 
In  order  to  meet  this  peak  load,  the  railway  has  to  carry 
sufficient  cars  to  meet  not  only  the  grain  peak  load,  but 
also  carry  on  the  ordinary  business  of  the  railway. 
Were  it  possible  to  equalize  the  grain  movement  over 
the  year,  it  is  obvious  that  a  lesser  number  of  cars  would 
be  needed  to  move  the  total  business. 

37.  Evils  of  parallel  lines. — As  has  been  indicated, 
attempts  have  been  made  to  trace  an  analogy,  if  not  an 
identity,  between  railway  transportation  and  other  busi- 
ness. The  analogy,  however,  is  imperfect.  On  account 
of  the  large  expenditure  of  fixed  capital  necessary,  the 
construction  of  parallel  railways  is  expensive.  Nor- 
mally it  is  better,  both  from  the  standpoint  of  the  public 
using  the  railway  and  from  the  standpoint  of  the  public 
investing  in  railways,  not  to  have  reduplication  of  closely 
paralleling  railways.  If  there  is  paralleling,  the  chances 
are  that  there  will  not  be  sufficient  local  business  for  the 
two  lines.  If  the  parallel  lines  connect  two  important 
commercial  centers,  they  may  each  obtain  a  sufficient 
share  of  the  trade.  But  as  regards  local  traffic  there 
may  be  insufficient  to  give  an  adequate  division. 

C-ra— 85 


386 


TRAFFIC 


■te: 


Two  parallel  railway  systems  competing  for  an  insuffl. 
cent  local  traffic  have  all  the  greater  refson  to    dnfa 
some  arrangement  with  reference  to  the  division  of  the 
traffic.    In  the  realignment  of  the  railway  system  of 
e«,tern  Ontario,  which  is  being  brought  about  by  the 
«.nstruct,o„  of  the  Canadian  Northern  lines  and  the 
Canad  an  Pacific  hne-the  Campbellford.  Lake  Ontario 
and  V\  estern-there  is  m  the  towns  along  Lake  OnUrio 
parallelmg  of  the  lines  of  the  Grand  Trunk  and  ^u2 
ca  .on  of  ,ts  facilities.    These  new  lines  are  being  S 
pnmardy  because  of  the  through  business.    As  to  the 
oeal  business,  while  there  will  be  competition  of  service, 
It  s  not  to  be  expected  that  there  wUl  be  competition  in 
rates,  except  m  so  far  as  the  short-line  mileage  of  one 
ra,  way  w,l  control  the  maximum  charges  of  the  other 
railways  between  given  points. 

Even  if  we  have  two  systems  which  do  compete  the 
competition  is  different  from  orfinary  competitio.:  To 
have  competition  operating  in  the  same  w^y  as  in  ordi- 
nay  business   there  would  have  to  be  a  very  L^l 

ing  railw^s"     '  "•""■"""«  '""  '""^•''  °'  *^  »■»•««■ 

If,  however,  a  railway  which  has  a  monopoly  of  the 

ocal  business  charges  exorbitant  rates,  the, fby  obtain- 

ng  profits  grcatci  than  normal,  it  is  possible  that  poten- 

cLt ioTr  »' T  T^  "■"■■^'^  *•■''•    B"'  <=«rtain  qualifi- 

ade„n»t.T  i"'™  '"  ■"'"''•     The  local  business 

ne«  »t       ,T   "'  T^- '™"  ""h  *e  additional  busi- 

pr^fit  rib  T'''  ''""^P'  ^'  '■"'«'«1"''te  to  give  a 

profit  on  the  investment  of  two  lines.    Then  airain  if 

derd"V'"V'  """'•  *^  ^p'*"'  ™» m";*:!''™;:* 

raffle.    It  cannot,  of  coiu-se,  be  moved  if  the  profits  are 
madequate.    If  a  railway  is  obtaining  profits  in  excess 


FREIGHT   RATES 


887 


of  the  normal  rate,  then,  subject  to  what  has  been  said, 
free  capital  may  in  time  be  attracted.  This  takes  time, 
although  it  is  not  impossible. 

38.  The  West  Shore  Case.— The  Hudson  River  Rail- 
road was  known  to  be  obtaining  a  large  return  on  the 
investment.  The  West  Shore,  which  parallels  the  Hud- 
son River  Railroad  on  the  west  side  of  the  river,  was 
the  outcome  of  this.  That  paralleling  does  not  of  neces- 
sity ensure  efficient  competition,  and  a  permanent  advan- 
tapfe  to  the  public  is  illustrated  in  this.  The  West  Shore 
was  built  primarily  as  a  blackmailing  system.  For 
some  time  it  cut  the  Buffalo-New  York  rates  in  two. 
The  nominal  stock  of  the  railway  represented  nothing. 
It  was  built  on  the  bonds.  The  Vanderbilt  system  was 
forced  in  self-protection  to  lease  the  road.  It  is  true 
that  the  public  gained  a  competition  in  service;  but  the 
puhlic,  in  order  to  obtain  this,  was  paying  at  the  time 
on  an  unnecessary  addition  to  fixed  capital. 

In  Canada,  especially  in  western  Canada,  parallel 
lines  are  being  extensively  built.  It  is  unfortunate  that 
this  is  being  done,  because  there  is  such  an  extent  of 
territory  still  needing  railways.  As  the  money  which 
goes  into  these  railways  for  the  most  part  represents, 
on  the  newer  lines,  at  least,  borrowed  money,  it  simply 
means  that  the  construction  of  every  additional  unnec- 
essary i)arallel  mile  lessens  to  that  extent  the  ability 
to  raise  capital  to  construct  railways  in  undeveloped 
country. 

39.  "Postage  stamp"  rates. — Arguing  from  the  anal- 
ogy of  the  postal  service,  some,  as  for  example,  Gait  in 
Engl  ,nd  and  Cowles  in  the  United  States,  have  argued 
that  there  should  be  a  flat  rate.  Cowles,  in  his  "A  Gen- 
eral Freight  and  Passenger  Port,"  has  put  the  position 
thus:    "Railway  rates  should  be  determined  by  the  cost. 


388 


TRAFFIC 


and  not  by  the  value,  of  the  service  rendered.    Any  rate 
that  will  pay  the  cost  of  the  shortest  haul  of  a  person  o 
of  a  piece  of  property,  within  a  railway  system,  will 
pay  the  cost  of  the  average  haul,  and.  therefore  the 
cost  of  service  rate." 

It  has  been  recognized  by  the  Interstate  Commerce 
Commission,  as  well  as  by  the  board,  that  while  dis- 
tance is  a  factor,  it  is  not  the  only  factor.     In  the  prac- 
tice of  rate-making  there  is  at  times  a  minimizing  of 
distance.     At  one  time,  in  shipments  from  Official  Classi- 
fication territory  to  Pacific  Coast  points,  the  practice 
grew  up  whereby  New  York  and  Chicago  had  the  same 
class  rate  to  the  same  destination.     This  arose  out  of  a 
competition  of  markets  as  between  the  territory  adjacent 
to  New  York  and  the  territory  adjacent  to  Chicago. 
The  railways  entering  into  the  two  cities  desired  to 
protect  the  trade  of  their  respective  sections,  and  finally 
a  compromise  was  worked  out  whereby  New  York  and 
Chicago  were  "blanketed"  on  Pacific  Coast  business. 

In  shipments  from  Ontario  and  Quebec  to  points  in 
the  Canadian  North  West,  the  territory  between  Men- 
treal  and  such  points  as  Samia  and  Windsor  in  the  south- 
western  peninsula  of  Ontario,  are  "blanketed"  on  a 
common  rate. 

Wellington,  in  his  "Economic  Theory  of  Railway 
Location,  which  is  noteworthy  as  the  first  real  attempt 
to  correlate  the  engineering  and  the  economics  of  loca- 
tion, puts  m  its  most  extreme  form  the  case  for  the  mini- 
mizmg  of  the  importance  of  the  distance  factor: 

The  sale  of  transportation,  like  the  sale  of  any  other  com- 
modity, IS  governed  by  the  universal  business  law  of  selling  what- 
ever is  salable  as  dearly  as  possible  (or  at  least  as  dearly  as  is 
prudent  and  wise)  regardless  of  the  cost  of  production.  The 
sclhng  price  of  no  marketable  commodity,  whether  transporta- 


FREIGHT    RATES 


S89 


tion  or  houses,  or  cotton  cloth,  is  fixed  by  the  cost  of  produc- 
tion, I'xccpt  that  if  it  will  not  brin^  a  profit  on  its  cost  it  is  no 
longer  produced ;  and  for  railways  any  such  attempt  would  be 
ptirticiiliirly  senseless,  for  the  reason  that  the  cost  of  any  par- 
ticular sale  of  transportation  may  be  considered  as  varying 
iinyu litre  from  zero  upwards;  depending  to  a  far  greater  extent 
tliHii  ill  any  other  commercial  transaction  simply  upon  the 
luiiount  tiiat  can  be  sold. 

The  theory  of  Cowles  rests  on  an  exaggeration  of  the 
niiiinportance  of  distance.  While  distance  may  not  in  a 
|)articular  case  be  the  determining  factor,  it  is  a  factor  to 
he  considered.  In  assuming  that  the  rate  that  will  pay 
the  cost  of  service  of  the  shortest  haul  will  be  the  proper 
rate  for  all,  he  is  resting  upon  pure  assumption.  If 
aj)j)lication  were  made  of  the  theory,  it  would  inevitably 
hapiH^n  that  the  long-distance  traffic  would  be  unduly 
l)()mised  at  the  expense  of  the  short-haul  traffic. 

Further,  if  it  is  contended,  as  it  is  by  Cowles,  that 
rates  should  be  determined  by  cost  of  service  and  that 
at  the  same  time  distance  should  be  disregarded  by  apply- 
ing' the  postal  principle,  it  follows  that  distance  is  not 
a  varying  element  in  the  cost  of  service,  and  that  it  must 
cost  no  more  to  haul  a  car  five  thousand  miles  than  to 
haul  it  five.  While  the  theory  might  possibly  be  enter- 
tained as  a  matter  of  public  policy,  as  a  statement  of  a 
cost  of  service  basis,  it  is  a  patent  absurdity. 

40.  Distance  rates. — While  the  "postage  stamp"  the- 
ory disregards  distance,  the  equal  mileage  theory  over- 
eiiipliasizes  it.  In  1873  there  was  introduced  into  the 
Parliament  of  Canada  a  bill  to  provide  that  "tolls  should 
he  at  all  times  charged  equally  to  all  persons  and  after 
the  same  rate  per  mile  for  all  distances  in  respect  of 
])assengers  and  traffic."  At  the  same  time,  the  subject 
was  engaging  the  attention  of  the  legislature  of  New 


890 


THAFPIC 


^.I^f    «  ""*'  "  "'"  *•■*  competition  of  g«rf, 

fn,n,  further  west,  which  went  through  on  .  lo^ 

ha,.,  ,«rn.,le  a,  eom,.ared  with  the  higher-rate  b^u 
1  ^  tT  '?'•  r""''  ''"'"«'"  "•e^n.at.^r  to^: 

of  1878  cau,ed  th,»  j.rojeet  to  he  rather  aetively  Z 
cu,«d  ,„  the  period  from  1878  to  1874.  " 

«  .lie  the  thoroughgoing  application  of  the  di,lan« 
prmcple  ha,  the  advantage  of  ,upplying  a  ™^  M 
here  are  difflcultie,  attaching  to  it,  fSle  ap^fcS 
.n  f«.ght  hu„ne,s.     A  distance  rate  woul.I  l.afe  h 'I 
advantage  that  it  would  give  the  preference  to  cT 
n,od,t,e,  po«e„i„g  large  value  in  ,mall  h^k,  .nZ 
would  make  a  local  market  for  bulky  eommoA  L    pj 
example,  rough  forest  product,.  cen.ent.  hide,  and  ,ki^ 
gra,n  and  gra  n  products,  sugar  beet,,  brick  , tone  1"' 
l.n,e,  etc.,  could  not  he  carried  c«n,iderable  d  rnc"*; 
at  present.     The  higher  valued  article,  would  moTun 

rd'oTiThi^rr'"""-™'""'-''^'-^ 

In  England,  the  Select  Committee  on  Railway  Com 

(a.)   It  would  prevent  railways  from  lowering  rate, 
leswn.ng  advantages  of  competition. 
larLer  ouLTir'''  """"'''"  '"'*  »"■'"«  ^"^^  "'«  »» 

tai^ada  between  L.C.L.  and  C.L.  In  England  train- 
load  quantities  may  also  be  considered.) 

ic.)  It  would  compel  the  same  rate  over  exnensive 
a,  over  less  expensive  lines  of  the  company.         ^ 

41.  Bate,  based  on  capitalization.-Vaks,  there  i,  in 


FREIGHT   RATES 


801 


the  first  instance  a  regulation  of  the  issue  of  the  securi- 
ties entering  into  the  capitalization,  there  is  no  assurance 
that  the  capiUlization  as  it  stands  is  in  its  entirety  legiti- 
mate.   Then,  again,  a  railway  which  has  been  lavishly 
assisted  by  the  government,  for  example,  the  Canadian 
Pacific,  may  be  able  to  keep  down  its  capitalization. 
Another,  like  the  Grand  Trunk,  may  have  been  forced 
at  times  in  default  of  government  assistance  to  issue  its 
st(Kk  at  heavy  discounts.     Under  the  capitalization  plan, 
is  the  Grand  Trunk  to  be  penalized  for  its  misfortunes? 
Then,  again,  if  the  road  with  the  lighter  capitalization 
and  rates  fixed  accordingly  competes  with  the  road  with 
the  heavier  capitalization  and  rates  fixed  accordingly,  it 
would  happen  that  between  common  points  the  latter 
road  would  have  to  meet  the  rates  of  the  former.     The 
furtlier  question  arises,  what  is  to  be  considered  in  strik- 
injr  the  rate  on  capitalization— is  it  the  par,  or  is  it  the 
cash  which  actually  was  raised? 

The  following  summary  for  1912  will  serve  to  indi- 
cate the  lack  of  harmony  between  the  takings  per  passen- 
ger or  per  ton  and  the  capitalization: 


Canadian  Pacific  (excluaive  of  leased  lines) . 

CuniKlian  Northern  (Western  lines) 

Grand  Trunk 


Ateragt 

Capitalization 

PerMiU 

$  47,354 

41,743 

l«0.dO» 


Paitenger 
MiU 

Eami  tgt 
CmU 
1.043 
S.114 
1.81S 


Ton  MiU 

Earning* 
Cent* 

.774 
.757 
.687 


42.  Physical  valuation  as  a  rate  ba«*.— Correlated 
with  t!ie  question  of  capitalization  as  a  rate  basis  is  physi- 
cal valuation,  which  is  attracting  so  much  attention  in 
the  United  States  at  present.  Commissioner  Clements, 
of  the  Interstate  Commerce  Conunission,  in  speaking 
before  the  House  Committee,  said :  "I  think  it  is  sound 
justice  and  law  that  as  a  basis  for  constitutional  earn- 
ings a  fair  return  on  the  value  of  the  property  means. 


392 


TRAFFIC 


generally  speaking,  a  fair  return  nr.  fk^  • 

ally  n.ade.  on«i.i,V  and  s'^Itly  "'''"'""'"' 

Just  what  the  »eneraleffepf  ,.f  ..I.,    •     i      , 

per,'  GaMc  said:  ^'^  ^mm.an  */,;^ 

.iiuXz':::;:  ti  ;;''■•"« ", ""  '"'""'■•°"  ->-  -p'e.e 

oo„.,u„,cr,  IC"     "  '°  '"7"''  -""  >>«-«'  'o  U.e  Amerio. 

«ro  .oc,„,  ovc.!;;:",:!!,*''™''  °"  "'"*''  ^■"'™»  -'"-^ 

In  the  case  of  the  valuation  of  the  New  York  v» 
ther,n,         t         't  appe„e<I  that  the  assets  excee.led 

.i.at  when  the  rate  l^ZZt IZTS^^''^'"^ 
return  thereon  determine.)    tl,  1  .     ,     "'*'  ■'"P^"' 

n.aximum  tailings on.efaiWT?''    Tl."'""  "•' 
That  is  to  say,  neither  of  Z.         ..    .7  ^^"^odit.es. 

.-^.- -2^;i£r*;L1.;-''•"■ 
-f  all  » ver  dl  evn  '  °'/T  ~"""°<l'ti^».  must  first 
..f  pro«s  '       ™'  "'"'  "'"^""-  ^"'-^  "-  item 

In  various  railways,  „„  attempt  has  been  made  to  dis- 


FREIGHT   RATES 


SOS 


tinguisli  between  expenses  of  passenger  and  freight  busi- 
ness. Certain  items  may  be  directly  allocated;  other 
items  whifh  are  not  so  capable  of  direct  allocation  are, 
in  the  case  of  the  Louisville  and  Nashville  and  the  Bur- 
liiiotoii  railways,  divided  on  the  basis  of  the  engine  mile- 
age for  each  class  of  traffic.  While  this  affords  a  sys- 
tem of  distribution  of  cost  which  may  be  of  comparative 
value  one  year  with  another,  it  does  not  show  how  cost  is 
actually  distributed,  because  it  is  based  on  an  assumption. 

The  Interstate  Commerce  Commission  abandoned  in 
1894  the  attempt  to  arrjve  in  its  accounting  system  at 
cost  of  service.  It  has  more  recently,  in  the  matter  of 
soft  coal  rates  to  the  lakes,  taken  up  the  matter  of  cost 
(listril)ution  once  more.  It  cannot,  however,  be  said  that 
the  commission  has  definitely  accepted  cost  of  ser^'ice 
as  the  infallible  criterion  of  reasonableness. 

In  railway  service,  there  are  certain  general  expenses 
wliich  must  be  borne  if  the  railway  is  to  be  a  railway  at 
all.  These  charges,  in  the  rough,  do  not  vary  with  the 
amount  of  business  done.  Then,  again,  the  railway  does 
hoth  ])assenger  and  freight  business ;  the  facilities  of  the 
railway  are  used  by  both  these  types  of  traffic.  The 
(|uesti()n  arises:  how  are  the  expenses  of  creation  and 
maintenance  of  these  facilities  to  be  divided  as  between 
these  forms  of  traffic?  Then,  again,  freight  may  be  mov- 
ing in  trainloads,  as  in  the  movement  of  such  a  staple 
as  wheat;  or  it  may  be  handled  in  way-freight  trains, 
wliich  are  peddling  package  freight.  The  question 
whether  the  movement  is  in  carload  or  in  less  than  car- 
load quantities  also,  as  has  been  indicated,  aflfects  the 
cost  of  handling.  But  the  freight  rate  which  is  struck 
must  l)e  an  inclusive  average.  The  cost  of  the  move- 
»'  ■  freight  is  affected  by  the  question  of  whether  it 
is      uu/h  or  local.     The  amount  and  direction  of  the 


S94 


TRAFFIC 


K  also  of  miportance.  I„  Canada  in  1912,  22  per  Z 
of  the  to  al  freight-ear  mileage  «=present;i  J^IZ 
movement  In  the  long  run,  the  loarkd^ar  JS 
must  pay  for  the  empty  movement  as  well  ^ 

44.  What  is  coat  of  sertice?-Vf\Kn  we  speak  of  cml 
of  serviee  ,t  must  be  remembered  that  it  covers  a  van^ 
of  meanmgs.    It  may  be  a  primary  cost  represenhV,! 
the  actual  cost  of  movement  either  ofthe  artidemS 
or  of  an  additional  unit  of  commodity  when  the  traffic  I 
already  movmg.    For  example,  a  certain  amount" 
package  freight  is  moving  westward  from  Fort  Wifc 
and  there  are  empty  cars  which  have  to  be  taken  wert- 
ward.    A  railway  may  conceivably  desire  to  attract  tmf. 
fie  at  low  rates  to  redress  the  volume  of  empty  mile.«  , 
smce  as  the  cars  are  moving  any  way  it  has  onlyl  ' 
question  of  the  additional  cost.    Ever/commodity  m^ 
contribute  m  some  degree  to  secondary  cost.    That  is 
to  say,  ,t  must  make  such  a  contribution  to  all  the  ex- 

enable  the  radway,  one  commodity  with  another,  to  be 

Afflcult  phase  of  the  cost  of  service  theory,  for  what  the 
commodity  can  contribute  to  this  secondary,  but  none 
the  less  necessary,  cost,  depends  on  its  ability  to  contrib- 
^ntributT  '"^  P^"-*'^"!  -^  of  what  it  ought  to 

An  important  question  as  affectmg  any  attempt  to 
determine  cost  of  service  is  the  ratio  of  constant  to  van- 

total  expenditures  of  the  railways  of  Canada  for  1912 
may  be  made: 

•  "RaMroad  Rates  and  Regulations."  by  W.  Z.  Ripley. 


FREIGHT    RATES 


395 


AXi\LYSIS  OF  TOTAL  EXPENDITURES  CANADIAN  RAILWAYS 

1912 

Per  Cent  of  Per  Cent  of 

Operating  Expenses  Total  Expenses 

Both      Constant  Variable       Both       Constant      VariabU 
Maintenance  of  way 

and  structures....  20.9           14  6.9          18.8           12.5              6.3 
Maintenance  of  equip- 
ment    19.8            9.9  9.9          17.8            8.9              8.9 

Traffic  expenses S.5    )      ^^  ^g            3.1    »      ^  q^          ^  q^ 

TransporUtion 52.4    J      *'"  *' "             47        J 

General  expenses.. . .     3.4            3.4  ....            3                3                .... 

100              55.2            44.7 
Fixed  charges 10.3  10.3  

100  59.75  40.25 

Summarizing  these  computations,  we  arrive  at  the  re- 
sult that  approximately  three-fifths  of  the  total  expendi- 
tures of  the  Canadian  railways  and  55  per  cent  of 
their  operating  expenses  are  independent  of  the  changes 
in  the  volume  of  traffic.  Two-fifths  of  the  total  expenses 
and  45  per  cent  of  the  operating  expenses  vary  with 
changes  in  the  traffic. 

The  Wisconsin  Railroad  Commission,  wliose  work 
in  connection  with  the  regulation  of  rates  is  extremely 
valuable,  has  placed  great  reliance  upon  the  cost  of 
service  principle.  Commissioner  Erickson,  of  that  com- 
mission, in  dealing  with  the  question  of  rate  regulation, 
has  said:  "The  cost  of  service  both  in  law  and  in  fact  ap- 
pears to  be  the  fundamental  basis  for  rates."  And  he 
has  also  said: 

In  order  to  be  able  to  determine  the  costs  per  unit  in  the 
railway  service  under  present  conditions,  it  is  necessary,  first, 
to  separate  the  expenses  between  freight  and  passenger  traffic, 
and  second,  to  separate  the  outlays  for  each  of  these  branches 
of  the  service  between  terminal  and  movement  expenses.  .  .  . 
I  pon  close  examination,  it  is  usually  found  that  when  the  ac- 
counts are  picked  to  pieces,  reclassified  and  reconstructed  along 
proper  lines,  often  60  per  cent  of  the  expenses  are  found  to  be 


396 


TRAFFIC 


special  in  each  case  to  the  freigiit  and  passenger  traffic,  and 
that  the  bahince  consisting  of  the  fixed  or  common  items,  bear 
so  close  a  relation  to  certain  factors  in  the  business  that  they 
can  be  safely  apportioned  thereon. 

The  commissioner  allocates  fixed  or  indirect  expenses 
in  freight  traffic,  for  example,  according  to  the  locomo- 
tive, the  car,  the  locomotive-mile,  the  car-mile,  the  train, 
the  train-mile,  the  number  of  cars  handled,  the  number 
of  tons  handled,  the  tons  carried  one  mile. 

It  would  be  interesting,  if  space  permitted,  to  pur- 
sue further  the  analysis  of  the  methods  used  by  the  Wis- 
consin Commission.  Sufficient  has  been  said  to  indicate 
the  thoroughness  with  which  they  have  worked  the  mat- 
ter out. 

But  while  the  Wisconsin  Commission  thus  emphasizes 
cost  of  service  as  fundamental,  it  recognizes  value  as  a 
factor  as  well.  Commissioner  Erickson,  in  a  paper  read 
before  the  National  Association  of  Railway  Commission- 
ers in  November,  1910,  said: 

.  .-.  costs  .  .  .  (are)  the  first   and   most   essential    element 
in  rate-making.     But  .  .  .  recognition  of  value  in  fixing  rates 
is  usually  regarded  as  in  line  with  the  best  interests  of  all  con- 
sumers .  .  .  cheap  and  bulky  articles  are,  as  a  rule,  not  moved 
at  all  except  at  comparatively  low  rates,  and  this  for  the  reason 
that  their  ability  to  pay  is  small.  .  .  .  While  low-priced  articles 
should  be  charged  comparatively  low  rates,  the  rates  so  levied 
upon  them,  under  normal  conditions,  should,  as  a  rule,  be  high 
enough  to  cover  their  share  of  the  ordinary  operating  expenses, 
including  something  in  the  way  of  net  earnings.     Such  traffic 
is  of  importance  even  on  these  terms.     It  increases  the  volume 
of  the  traffic  and  thereby  decreases  the  cost  of  the  same  per  unit. 
By  contributing  something  to  net  earnings,  it  also  decreases 
the  amount  that  will  have  to  be  borne  by  the  rest  of  the  traffic. 
The  deficiencies  in  the  net  earnings  from  low-grade  traffic  should 
be  made  up  by  higher  rates  on  the  higher  grade  traffic. 


FREIGHT    RATES 


397 


Used  in  this  way,  cost  of  service  determines  not  the 
actual  reasonable  rate  to  be  charged  but  the  minimum 
necessary  rate. 

' "  What  the  traffic  will  hear. — The  Cullom  Commit- 
t  whose  report  was  responsible  for  the  constitution 
of  the  Interstate  Conmiission,  said:  "The  capacity  of 
each  commodity  to  contribute  to  the  payment  of  the 
fixed  charges  is  measured  by  the  extent  to  which  the  cost 
of  its  transportation  fixes  its  market  value  and  deter- 
mines the  question  of  its  movement.  .  .  ."  Commissioner 
liaiie,  who  during  his  tenure  of  office  as  a  member  of  the 
Interstate  Commerce  Commission,  was  a  most  trenchant 
critic  of  railway  evils,  has  said: 

.  .  .  consideration  must  be  given  to  what  may  be  termed 
public  policy,  the  advantage  to  the  community  of  having  some 
kinds  of  freight  carried  at  a  less  rate  than  other  kinds,  and  this 
is  tlie  true  meaning  of  the  phrase,  "What  the  traffic  will  bear." 
It  expresses  the  consideration  that  must  be  shown  by  the  traffic 
nifinager  to  the  need  of  the  people  for  certain  commodities.  He 
accordingly  imposes  a  higher  rate  upon  what  may  be  termed 
luxuries  as  compared  with  that  imposed  upon  those  articles 
for  which  there  is  more  universal  demand.  .  .  .^ 

Albert  Fink,  who  was  the  first  railway  official  in  the 
Ignited  States  to  attempt  to  make  a  scientific  study  of 
traffic,  said: 

The  question  that  greatly  controls  tariffs  is  what  is  the 
service  worth  not  what  does  it  cost;  and  this  is  a  mere  commer- 
cial transaction  uncontrollable  by  acts  of  legislation.  The 
relative  value  of  an  article  at  the  place  from  and  to  which  it  is 
sliipped  determines  the  charges  for  transportation  it  can  bear. 
If  a  greater  charge  is  made  than  the  difference  in  these  values, 
tlic  article  cannot  be  moved.  It  may,  therefore,  be  found  neces- 
sary to  charge  on  some  articles  less  than  the  full  cost  of  trans- 
portation, in  order  to  enable  them  to  be  moved  at  all,  and  this 
^22  /.  C.  C,  623, 


398 


TRAFFIC 


necessitate^^  again  to  charge  more  on  others  which  can  bear 
higher  charges. 

Is  the  principle  which  the  foregoing  quotations  set 
out  limited  to  railway  business  alone? 

46.  Principle  applied  in  department  stores.— Some 
years  ago  the  writer  had  the  interesting  experience  of 
being  shown  through  the  various  departments  of  Can- 
ada's greatest  department  store.    The  guide  stated  that 
it  was  the  policy  to  have  every  commodity  sold  within 
six  months.    It  was  stated  that,  of  course,  in  most  de- 
partments the  commodities  were  turned  over  many  times 
in  the  six  months'  period.    In  the  picture  department, 
however,  the  sales  were  normally  slower.    But  the  rule 
that  all  articles  must  be  disposed  of  in  six  months  ap- 
plied here  as  well.    If  a  picture  would  not  sell  at  the 
price  originally  marked,  the  price  would  be  reduced,  and 
successive  reductions,  if  necessary,  would  be  made  so  that 
the  pictT-re  would  be  disposed  of  in  the  six  months' 
period.    Now  the  picture  might  be  disposed  of  at  a  very 
slight  profit,  or  even  at  cost.    The  other  commodities 
handled  in  other  departments  might  contribute  in  greater 
degree  to  fixed  charges  and  to  profits.     The  rate  of 
profit  would  of  necessity  vary  with  the  conditions  of 
demand.    But  in  the  last  analysis  all  tlie  commodities 
must  be  disposed  of  at  such  prices  as  would  meet  not 
only  the  charges  special  to  them,  but  the  overhead 
charges  as  well,  plus  some  contribution  to  profits.    What 
each  commodity  would  pay  to  overhead  charges  and 
profits  would  depend  on  the  price  at  which  the  commod- 
ity could  be  sold ;  in  other  words,  on  the  ability  to  pay. 

47.  Applied  to  a  newspaper.— Some  years  ago  a 
Canadian,  resident  in  California,  subscribed  for  a  Cana- 
dian daily  paper.  He  found  that  the  price  per  annum 
west  of  the  IMississippi  was  much  less  than  it  was  in  Can- 


FREIGHT    RATES 


ada.  The  contents  of  the  paper  were  the  same  in  Canada 
as  ill  California.  In  Canada,  the  subscriber  obtained  the 
daily  news  from  its  columns.  In  California  the  subscriber 
of  necessity  received  the  daily  news  from  other  sources. 
He  was,  however,  interested  in  keeping  in  touch  with 
various  developments  in  Canada.  Was  the  paper  sold 
ill  Canada  at  a  higher  price  in  order  that  it  might  sell 
for  a  lower  price  in  California?  Was  the  price  for  the 
C'alifornian  subscriber  a  reasonable  price  covering 
cost  and  profit,  with  the  corollary  that  the  Cana- 
dian price  was  excessive?  As  a  matter  of  fact,  the 
service  in  Canada  was  different  from  that  rendered  in 
California.  The  paper  sold  west  of  the  Mississippi  may 
he  regarded  as  a  by-product.  To  the  extent  it  con- 
tributed something  over  and  above  actual  cost  to  general 
exj)enses  it  was  aiding  in  holding  down  the  price  in 
Canada.  The  price  as  charged  in  Canada  was  not  ex- 
orbitant. Presumably  it  was  felt  that  to  sell  the  paper 
to  the  Canadian  subscriber  at  the  same  price  as  west  of 
tlie  Mississippi  would  not  yield  a  fair  average  profit  on 
tlie  investment.  The  only  conclusion  that  can  be  ar- 
rived at  is  that  having  in  mind  the  different  services 
rendered  in  the  two  sections,  the  lower  charge  was  all 
the  traffic  would  bear. 

48.  Practical  meaning  of  the  term. — There  is  no  ques- 
tion but  that  if  the  railway  rate  is  so  fixed  so  as  to  take  up 
the  difference  between  the  price  at  the  place  of  original 
shipment  and  the  price  at  destination — the  full  measure 
of  the  value  of  the  service — this  is  extortion.  But  the 
term  "what  the  traffic  will  bear"  is  concerned  with  some- 
thing within  this  outside  limit.  It  is  concerned  not  with 
"all  the  traffic  can  bear,"  but  what  it  can  bear  and  at  the 
same  time  afford  a  mutual  profit. 

Keference  is  sometimes  made  to  the  fact  that  many 


400 


TRAFFIC 


articles  of  light  weight  and  high  values  could  stand  ver- 
much  higher  rates  than  at  present,  without  seriously 
affecting  the  consumer.  To  say,  for  example,  that  an 
increase  of  10  per  cent  in  the  rates  on  furniture  might 
add  sixteen  cents  to  the  cost  of  a  dining-room  set;  that 
an  ordinary  suit  of  clothing  might  be  increased  from  a 
third  to  half  a  cent  by  a  10  per  cent  increase  in  freight 
charges;  and  that  by  a  similar  increase  the  cost  of  shoes 
might  be  increased  one  cent  per  pair,  is  really  to  beg  the 
question,  because  the  question  is  not  that  the  article  in 
question  could  stand  a  very  much  higher  rate  without 
appreciably  affecting  the  consumer,  but,  is  the  rate  rea- 
sonable? As  has  been  aptly  said,  "Statements  like  these 
.  .  .  emphasize  the  economy  of  the  transportation  serv- 
ice; but  they  also  show  with  equal  clearness  that  if  the 
carrier  is  not  prevented  by  competition  or  by  govern- 
ment interference,  he  may  exact  such  rates  of  producers 
as  would  compel  them  to  pay  much  greater  sums  to  the 
carrier  than  it  is  entitled  to  receive." 

Charging  what  the  traffic  will  bear  has,  with  the  rec- 
ognition of  its  proper  limitations,  a  justification.  While 
the  transportation  charge  is  not  properly  a  tax  since  it 
is  a  payment  for  a  specific  service,  while  in  the  case  of 
taxation  it  is  difficult  to  earmark  the  particular  benefit 
received,  it  bears  an  analogy  to  the  basis  of  taxation, 
namely,  ability  to  pay.  Properly  applied,  charging  what 
the  traffic  will  bear  means  so  apportioning  the  charges 
as  to  allow  the  freest  possible  movement  of  all  commod- 
ities. Certain  charges,  as  has  been  seen,  do  not  vary 
with  the  traffic.  No  article  should  be  handled  at  less  than 
the  out-of-pocket  charges  for  its  movement.  But  what 
shall  it  contribute  to  the  general  expenses?  As  the  Wis- 
consin Commission  points  cut,  there  must  be  considered 
the  value  and  nature  of  the  article  as  well.    If,  then, 


FREIGHT   RATES 


401 


ice,  lime,  or  stone  cannot  contribute  much  over  and 
above  out-of-pocket  expenses  to  constant  expenses,  some 
otiier  commodity  must  bear  more. 

Some  years  ago,  a  railway  official  stated  that  rates 
were  based  on  competition,  comparison,  and  compromise. 
That  is  to  say,  rates  are  wholly  empirical.  While  this 
may  be  too  b  oad  a  generalization,  the  experience  of  Ger- 
many is  in  point.  There,  on  the  government  owned  and 
oi)erated  railways,  there  was  at  first  a  "space"  tariff 
whereunder  each  commodity  paid  an  equal  rate  per  mile 
based  on  the  space  occupied  by  it  in  the  car,  plus  a  fixed 
terminal  charge.  Now  there  is  in  operation  a  tapering 
rate.  The  rate  per  kilometer  decreases  as  the  distance 
increases,  and  it  is  also  modified  in  particular  cases  by 
competition.  The  government  has  had  to  consider  the 
ability  of  conmiodities  to  pay.  In  the  export  rates  of 
the  German  railways  to  the  seaports,  the  same  recogni- 
tion of  competition  is  to  be  found  both  in  respect  of 
water  and  of  market  competition.  For  example,  to  meet 
the  competition  of  British  manufactured  goods  at  the 
seaports,  similar  German  goods  are  carried  by  rail  to 
these  ports  at  much  lower  rates  than  are  charged  on 
local  rail  movement. 

49.  View  of  Canadian  Manufacturers'  Association. — 
Industrial  Canada,  the  organ  of  the  Canadian  Manu- 
facturers' Association,  in  dealing  wiiii  the  subject  from 
the  shippers'  standpoint,  stated  the  situation  as  follows: 

Criticism  of  the  railways  and  their  methods  of  rate-making 
should  be  tempered  by  a  consideration  of  some  of  the  problems 
they  have  to  meet.  In  theory,  no  doubt,  a  carrier  should  charge 
the  same  rate  for  the  same  service  under  all  conditions.  Prac- 
tically such  a  thing  is  impossible.  In  order  that  the  factories 
of  Ontario  may  operate,  it  is  necessary  that  coal  be  carried 
from  Pennsylvania.     It  must  be  delivered  for  a  few  dollars  a 

c-m-«e 


402 


TRAFFIC 


ton;  it  costs  so  much  at  the  mine  mouth;  the  rest  goes  for 
transportation.  If  more  were  charged  the  factory  could  not 
buy  it  and  the  business  developed  by  that  factory  would  cease. 
For  that  reason,  railways  are  hauling  coal  at  a  price  which  in 
itself  would  not  pay  the  cost  of  operation.  They  do  it  in  order 
that  business  in  their  territory  may  be  developed.  The  man 
who  establishes  a  smelting  plant  in  Ontario  must  be  able  to 
manufacture  pig  iron  at  a  cost  which  will  enable  him  to  sell  in 
competition  with  his  competitors  in  Pittsburg,  Sydney,  or  any 
other  point.  With  fixed  charges  established  and  the  cost  of 
ore  and  coal  at  the  mine  mouth  uniform,  he  is  able  to  pay  for 
transporting  that  ore  and  coal  only  so  much.  That  is  all  the 
traffic  will  bear.  It  rests  then  with  the  railway  to  say  whether 
for  the  sake  of  the  business  such  a  plant  will  bring  into  exist- 
ence, or  to  keep  rolling  stock  moving  or  to  provide  return 
cargoes,  this  traflic  is  worth  while  at  such  a  price.  But  the 
principle,  that  of  charging  what  the  traffic  will  bear,  is  sound 
and  is  indeed  the  only  system  which  is  at  all  practicable.  The 
idea  that  other  industries  have  to  pay  extra  to  make  up  for 
low  rates  on  raw  materials  is  absurd.  The  business  has  to  be 
taken  at  a  low  price  or  not  at  all.  By  taking  it  fixed  charges 
are  distributed  over  a  wider  bulk  of  business  and  conditions  are 
to  that  extent  improved  for  other  users  of  the  service.  It  prob- 
ably costs  a  railway  as  much  to  handle  a  ton  of  coal  as  a  ton 
of  silk.  If  the  rates  were  averaged  the  buyer  of  a  piece  of  silk 
might  benefit  to  the  extent  of  a  cent  or  two,  while  the  house- 
holder would  find  his  coal  bill  go  up  some  dollars  a  ton.  The 
suggestion  would  be  no  more  popular  than  feasible.  As  the 
present  system  is  the  only  one  which  practical  railway  men  have 
so  far  been  able  to  devise  and  as  it  has  been  approved  by  ship- 
pers as  right  in  principle,  though  frequently,  it  is  true,  some- 
what unsatisfactory  in  its  individual  incidences,  we  may  be  al- 
lowed to  accept  what  we  have  rather  than  ...  to  fly  to  evils 
that  we  know  not  of. 

What,  then,  is  the  test  of  reasonableness?    Distance, 
bulk,  conditions  of  loading,  value,  competition,  cost  of 


FREIGHT    RATES 


403 


service — these  and  other  factors  all  have  weight.  But 
IK)  one  factor  can  be  pointed  to  as  exclusively  applicable 
ill  every  case.  There  is  no  yardstick  of  reasonableness. 
While  there  are  factors  capable  of  more  or  less  precise 
determination  which  bear  upon  the  question  of  reason- 
ableness, the  final  answer  of  a  regulative  tribunal  must 
l)e  that  the  reasonableness  of  a  rate  is  a  matter  of  judg- 
ment. 


CHAPTER   IV 


FREIGHT    RATES    IN    PRACTICE 

50.  Class  tariffs  and  commodity  tariffs. — By  refer- 
ence to  the  classification  it  may  be  ascertained  in  which 
class  the  article  (for  example,  cotton  piece  goods)  the 
shipper  desires  to  send  is  to  be  found.  By  reference  to 
the  appropriate  tariff  the  rate  for  the  article  will  be 
found. 

Tariffs  may  name  rates  either  by  classes  or  by  com- 
modities. When  they  name  rates  on  specific  com- 
modities, these  commodities  are  taken  out  of  the  ordinary 
classification  rating.  In  Canada  and  in  the  United 
States,  tariflFs  quoting  rates  on  commodities  are  known 
as  commodity  tariffs.  In  England  and  Germany  they 
are  known  as  Exceptional  Rates.  Commodity  tariffs 
are  concerned  with  the  lower  grade  goods. 

In  a  commodity  tariff  the  normal  unit  is  the  carload. 
A  commodity  rate  is  in  general  a  recognition  of  the 
volume  of  movement.  It  may  be  given  with  the  inten- 
tion of  developing  an  industry,  or  as  a  recognition  of  a 
large  tonnage  from  a  staple  industry — for  example,  the 
movement  of  grain  or  live  stock  in  Canada.  When  there 
are  different  classifications  in  a  country,  as  in  the  United 
States,  we  find,  for  example,  in  the  Southern  Classifica- 
tion, raw  cotton,  a  staple  commodity,  given  a  conmiodity 
rating,  while  under  the  Western  and  the  Official  Classi- 
fications it  has  a  class  rating.  Again,  the  volume  of 
movement  of  iron  ore  in  the  northern  states  leads  to  the 

404 


FREIGHT   RATES   IN   PRACTICE 


40ff 


istublishment  of  a  commodity  rate.  A  commodity  rate 
may  be  given  as  a  result  of  water  competition,  as  in  the 
ease  of  traffic  destined  to  the  Pacific  Coast. 

Ill  Germany,  the  reasons  given  for  granting  such 
rates  will  outline  the  extent  of  the  practice.  The  rea- 
sons summarized  are:  railway  competition,  competition 
uj^aiiist  waterways  and  highways,  competition  against 
foreign  transportation  ways,  competition  to  divert  traffic 
to  a  given  harbor,  competition  of  markets,  rates  granted 
to  develop  industries  which  have  unfavorable  geographi- 
cal situation,  rates  granted  to  ensure  the  continuity  and 
increase  of  transportation.  For  England,  the  granting 
of  such  rates  has  been  justified  by  the  foregoing  con- 
siderations and,  in  addition,  by  volume  and  regularity 
of  traffic,  loading  per  car  or  per  train,  earning  power  of 
the  traffic,  liability  or  non-liability  to  damage,  general 
considerations  of  what  the  traffic  will  bear. 

As  indicative  of  the  nature  of  the  commodities  on 
which  such  rates  are  granted,  the  following  list  of  the 
])riiicipal  articles  on  which  carload  commodity  rates  are 
published  in  Canada  may  be  referred  to: 

Canned  goods,  lumber  and  terial  (brick,  stone,  sand,  lime, 

hliiii^les     and     rough     forest  etc.),  paper,   wood-pulp,   pe- 

products  generally,  salt,  coal  troleum  and  its  products,  fer- 

niul    coke,    ores,    grain    and  tilizers,   sugar   and   molasses, 


starch  and  glucose,  ice,  sugar 
beets,  cooperage  stock,  po- 
tatoes, turnips,  onions,  flax- 
seed and  meal. 


grain  products,  cement,  hides 
and  skins,  packing-house 
products,  iron  and  steel  ar- 
ticles (coarse),  building  ma- 

As  an  example  of  the  method  pursued  in  building  up 
a  particular  conmiodity  tariff,  reference  may  be  made 
to  the  C.  P.  R.'s  special  coke  and  coal  tariff,  C.  R.  C, 
Xo.  W1296,  effective  October  4,  1909.  This  tariff, 
Mhich  applies  in  western  Canada,  took  coal  out  of  the 


406 


TRAFFIC 


10th  class,  to  which  it  belongs,  and  worked  out  the  fol- 
lowing basis,  the  rate  tapering  as  the  distance  increases: 

100  miles  and  less 66%  of  10th  class 

"""  64% 


200 

300 

400 

500 

600 

700 

800 

1000 

62% 

61% 

60% 

59% 

53% 

51% 

Class  rates  apply  to  movements  either  way.  They 
carry  the  notation  that  they  are  effective  "between"  sta- 
tions. A  commodity  rate  is  specific  and  applies  to  a 
movement  in  one  direction,  unless  otherwise  noted.  For 
example,  the  Canadian  Pacific  tariff  on  grain,  flaxseed 
and  grain  products  from  stations  in  Manitoba,  Sas- 
katchewan, and  Alberta  to  Westport,  Fort  William,  and 
Port  Arthur  is  limited  to  the  movement  in  the  one  direc- 
tion and  to  specific  points. 

Commodity  rates  are  extensively  used.  In  Canada, 
at  least  75  per  cent  of  the  railway  tonnage  is  carried  on 
commodity  rates.  In  the  United  States,  probably  a 
larger  percentage  of  the  business  is  so  transacted.  On 
the  transcontinental  business  to  the  Pacific  Coast,  into 
which  water  competition  enters  as  an  important  com- 
peting and  regulative  factor,  all  the  rates  may  be 
regarded  as  commodity  rates.  In  England,  the  com- 
modity rates  cover  about  75  per  cent  of  the  business;  in 
Germany,  about  63  per  cent. 

51.  Comparisons  of  freight  fm/^c— Comparison  be- 
tween the  freight  rates  of  Canada  and  the  United  States 
on  the  one  hand  and  the  freight  rates  of  England  and 
Germany  on  the  other  hand  are  often  made  with  a  view 
of  showing  how  low  are  the  rates  of  the  New  World. 


FREIGHT   RATES   IN    PRACTICE 


407 


Before  making  comparisons  one  must  be  sure  that  there 
is  a  common  denominator. 

While  in  Canada  and  in  the  United  States  the  increase 
in  the  nmnber  of  carload  ratings  and  the  increase  in  the 
size  of  the  cars  has  had  its  effect  in  the  increase  of  the 
average  tonnage  per  car,  commercial  conditions  differ 
in  England  and  in  Germany.  In  Canada  and  in  the 
United  States  the  80-ton  car  may  be  taken  as  the  normal 
car.  In  England  the  10-ton  car  and  in  Germany  the 
20-ton  car  are  the  normal  cars.  The  Canadian  Pacific 
in  moving  grain  to  the  head  of  the  Lake^,  in  trainloads, 
can  average  88.75  tons  per  car.  In  England  the  average 
consignment  of  grain  is  about  2  tons.  In  general  mer- 
chandise in  England  an  average  of  the  business  from  a 
representative  station  of  the  Great  Northern  on  one  day 
showed  4,427  packages,  which  had  a  total  weight  of  128 
tons.  The  average  weight  per  consignment  was  two 
cwt.,  the  average  weight  per  package  was  62  lbs.  The 
total  number  of  cars  to  move  this  business  was  72,  while 
the  average  load  per  car  was  84  cwt.  Under  the  most 
favorable  circumstances  the  average  loading  of  merchan- 
dise per  car  on  the  London  and  North  Western  does  not 
exceed  three  tons. 

In  Canada  and  the  United  States  large  cars  with  large 
shipments  are  used.  In  England,  small  cars  with  small 
shipments  and  greater  despatch  are  used.  Some  years 
ago  an  officer  of  the  Caledonian  Railway,  in  comparing 
the  rates  of  the  quantities  normally  moving  on  his  rail- 
M-ay  with  those  out  of  New  York  and  Philadelphia, 
found  that  on  groceries,  dry  goods,  and  tea  up  to  dis- 
tances of  forty  or  fifty  miles,  the  rates  on  his  railway  were 
lower. 

In  Canada  and  the  United  States,  the  ton-mile  rate, 
a  work  distance  rate,  built  up  by  multiplying  weight  by 


408 


TRAFFIC 


distance,  affords  a  statistical  measure  of  earnings.    Ton- 
mile  rates  are  kept  in  England  by  the  North  Eastern 
Railway,  and  comparison  may  be  made  with  the  German 
railways.    But  in  England  and  in  Germany  the  average 
haul  and  average  loading  are,  because  of  differences  in 
business  conditions,  very  much  less  than  in  Canada  and 
in  the  United  States.    In  England  it  would  be  too  ex- 
pensive, even  if  business  were  so  conducted,  on  account 
of  the  expense  of  terminals,  to  hold  trains  until  maxi- 
mum tonnage  was  accumulated.    The  ton-mile  rates  in 
Canada  are  held  down  by  the  long  hauls.     Ton-mile 
rates  are  of  value  as  a  measure  of  earnings  and  of  the 
work  done  for  the  earnings.    But  they  are  useful  for 
comparative  purposes  only  when  conditions  are  similar. 
Since  they  are  averages  of  all  kinds  of  traffic,  long  haul 
and  short  haul,  carload  and  less  than  carload,  high-grade 
and  low-grade  tonnage,  they  are  averages  which  do  not 
necessarily  afford  a  conclusive  criterion  of  the  reason- 
ableness of  a  rate. 

52.  Component  factors  of  a  m^e.— While  in  England 
charges  for  station  and  other  terminal  services  are  recog- 
nized as  being  distinct  from  the  haulage  charge,  in 
Canada  and  the  United  States  the  practice  is  to  quote 
an  inclusive  rate. 

Logically,  the  freight  rate  is  composed  of  two  fac- 
tors—the terminal  charge  and  the  haulage  charge. 
Whether  the  terminal  service  is  carried  on  in  a  large 
expensive  terminal  or  at  a  small  wayside  station,  the 
service  is  distinct  from  that  performed  in  the  road  haul. 
In  the  Grand  Trunk  terminals  at  Ottawa  it  takes,  allow- 
ing space  on  the  team  track  for  a  car  and  for  the  neces- 
sary roadway  for  access,  a  space  of  800  square  feet  per 
car.  This  space  at  $5.00  per  square  foot  represents  an 
mvestment  of  $4,000  for  freight-car  space  per  car.  Then 


FREIGHT   RATES   IN   PRACTICE 


409 


there  are  the  freight-shed  facilities  and  the  switching 
expenses.  Switching  movements  in  terminals  have  been 
computed  as  representing  per  mile  an  expense  of  from 
six  to  twelve  times  that  incurred  per  mile  on  a  road  haul. 

In  the  terminal  cost  there  is  included  not  only  the  cost 
of  the  particular  movement,  but  there  is  also  the  question 
of  its  contribution  to  overhead  expenses.  Then,  again, 
there  is  the  complicated  question  of  the  joint  cost  of  the 
terminal  as  between  freight  and  passenger  services. 
Aside  from  large  expenditures  on  passenger  stations  it  is 
to  be  remembered  that  the  passengers  move  themselves 
in  and  out  of  the  terminal;  the  freight  has  to  be  moved. 

On  the  road  haul  there  are  the  expenses  for  the  wages 
of  the  train  crew,  the  cost  of  fuel,  oil,  waste,  wages  of 
engine  crews.  Here,  again,  there  is  not  only  the  ques- 
tion of  the  cost  of  the  particular  movement,  which  in  the 
case  of  a  trainload  movement  moving  continuously 
through  a  division  may  be  computed,  there  is  the  further 
and  more  difficult  question  of  what  contribution  the  com- 
modity moved  should  ma^e  to  overhead  charges. 

Both  in  the  case  of  the  terminal  costs  and  of  the  road 
haul  costs  the  matter  is  complicated  by  the  fact  that  dif- 
fering quantities  may  be  concerned,  carload  and  less  than 
carload  quantities,  the  costs  of  handling  which  differ. 

The  terminal  costs  at  both  ends  of  the  haul  are  con- 
stant whether  the  haul  be  for  10  or  for  800  miles.  But 
in  the  cost  of  the  road  haul  the  services  incidental  to  the 
movement  do  not  increase  in  the  same  ratio  as  the 
mileage.  Further,  the  necessary  terminal  cost  is  a 
greater  percentage  of  the  joint  cost  on  the  short  haul 
of,  say,  10  miles  than  on  the  longer  haul  of  800  miles. 
As  the  distance  increases  the  haulage  charges  tend  to 
vary  inversely,  while  the  terminal  costs  chargeable 
against  the  movement  also  become  of  less  importance 


410 


TRAFFIC 


per  mile  as  the  distance  increases.  That  is  to  say,  on  a 
basis  of  ton-mile  earnings,  the  ton-mile  rate  tends  to  de- 
crease as  the  distance  increases. 

In  the  trans-shipment  of  grain  cargoes  at  Depot  Har- 
bor the  Parry  Sound  Railway  placed  grain  on  cars  at 
an  expense  of  25  cents  per  ton.  The  board  has  recog- 
nized that  in  dividing  up  a  rate  to  arrive  at  the  reason- 
ableness of  the  component  parts  a  terminal  expense 
of  20  cents  per  ton  is  not  unreasonable.  Byers,  in  his 
"Economics  of  Railway  Operation,"  has  figured  out 
terminal  costs  on  the  basis  of  New  York  figures  as  fol- 
lows, per  ton: 

Interest  and  depreciation 28  6 

Station  services  and  shipping 41 15 

70.14 

In  1906,  the  Canadian  Pacific  made  a  computation  as 
to  switching  costs  in  terminals  at  Winnipeg  on  line  haul 
business;  that  is,  on  carloads  received  from  or  shipped 
to  points  outside  of  Winnipeg.  The  services  performed 
were  classified  as  follows: 

(a)  The  expense  of  assembling  and  sorting 
through  cars.  This  covered  185,501  cars  handled 
an  average  movement  of  3,600  feet.  The  cost  was 
computed  at  $3.99  per  car. 

(b)  The  placing,  sorting,  and  assembling  of  cars 
for  local  sidings  in  C.  P.  R.  terminals.  This  covered 
134,202  cars,  with  an  average  movement  of  7,200 
feet.    The  cost  was  computed  at  $5.32  per  car. 

(c)  The  transfer  of  cars  between  the  Canadian 
Northern  and  Canadian  Pacific  at  St.  Boniface, 
destined  to  or  received  for  siding  delivery  in  either 
terminal.  This  covered  24,961  cars,  with  an  aver- 
age movement  of  20,050  feet.  The  cost  was  com- 
puted at  $6.65  per  car. 


FREIGHT   RATES   IN    PRACTICE  411 

The  cost  figures  were  based  on  interest  and  deprecia- 
tion on  the  freight  terminals;  interest  and  depreciation 
on  the  engines  used  exclusively  in  the  switching  service; 
actual  cost  of  fuel,  oil,  waste,  and  repairs  on  these  en- 
gines; actual  cost  of  wages,  superintendence,  etc.,  in 
connection  with  exclusively  terminal  work. 

These  figures,  assuming  that  the  cars  were  of  80-tons 
capacity,  gave  averages  per  ton  as  follows:  (a),  18.8 
cents;  (b) ,  17.7  cents;  (c) ,  22.1  cents.  If  an  average  is 
struck  of  all  the  cars  switched  it  amounts  to  16  cents. 

The  Wisconsin  Commission  has  worked  out  the  fol- 
lowing computations  of  terminal  cost  per  ton  for  the 
different  classes  of  the  Western  Classification : 

Classes 18  8  4  5 A B 2_  _^ — 

$1.68  $1.39  $1.18    84c.     67c.     76c.     «8c.     60c.     4«c.     83c. 

If  we  arbitrarily  assume  that  one  ton  of  each  class  is 
moved  this  would  give  an  average  of  82.8  cents  per  ton 
to  cover  terminal  costs  at  both  ends  of  the  line. 

Variations  in  terminal  expenses  will  be  found  not  only 
in  regard  to  the  cost  of  terminal  properties,  but  also  in 
connection  with  the  nature  of  the  loading.  In  a  specific 
case  the  Wisconsin  Commission  has  computed  that 
when — 

Car  is  loaded  with    6  tons  freight,  terminal  ejcpenses  are  per  ton $1 .68 

Car  is  loaded  with  16  tons  freight,  terminal  expenses  are  per  ton 56 

Car  is  loaded  with  20  tons  freight,  terminal  expenses  arc  per  ton 48 

53.  Distance  as  a  factor  in  rates. — Examples  have 
already  been  given  showing  how  in  rate-making  distance 
may  be  minimized.  In  addition  to  those  already  given, 
reference  may  be  made  to  the  system  of  group  rates.  In 
Illinois,  in  the  movement  of  coal,  points  forty  miles 
apart  have  been  grouped  under  the  same  rate.  Under 
the  Canadian  Pacific  coal  and  coke  tariff,  abeady  re- 
ferred to,  the  Lethbridge  group,  including  six  shipping 


412 


TRAFFIC 


points,  covers  a  distance  of  fifty  miles.  Examples  either 
of  the  originating  or  of  the  destination  points  being 
grouped  are  quite  common.  Reference  may  be  made  to 
the  class  and  commodity  tariffs  westbound  to  points 
west  of  Lake  Superior,  including  the  Pacific  Coast,  to 
the  rates  on  grain  and  grain  products  from  Fort  William 
to  eastern  points,  JMontreal  and  west  thereof,  and  to  the 
rates  on  lumber  and  forest  products  from  British  Co- 
lumbia Coast  and  interior  mills  to  eastern  Canada. 

The  regulative  tribunals  of  England,  Canada  and  of 
the  United  States  have  recognized  that  reasonable  group- 
ing is  permissible.  Grouping  arrangements  usually 
come  into  existence  where  there  are  a  considerable  num- 
ber of  points  supplying  a  commodity  of  general  demand 
to  a  common  market.  Grouping  at  the  destination 
points  may  also  occur  when  such  a  commodity  is  mar- 
keted over  a  considerable  area  after  a  long  haul. 

But  while,  because  of  special  conditions,  distance  may 
be  minimized,  it  is,  in  the  absence  of  such  disturbing 
conditions,  always  to  be  reckoned  with. 

The  most  interesting  example  in  America  of  the  adop- 
tion of  the  distance  basis  of  rate-making  is  to  be  found 
in  the  territory  of  the  OflScial  Classification.  This  terri- 
tory is  subdivided  into  Trunk  Line  Association  terri- 
tory, which  may,  in  a  general  way,  be  described  as  the 
section  east  of  a  line  drawn  through  Buffalo,  Pittsburg, 
Parkersburg,  West  Virginia,  and  Norfolk,  Virginia. 
West  of  this  is  to  be  found  Central  Freight  Association 
territory  occupying  the  remainder  of  the  Official  Classi- 
fication territory. 

In  the  early  seventies  the  railways  located  in  what  is 
now  the  territory  of  the  Official  Classification  were  en- 
gaged in  cutthroat  competition.  In  addition,  the  water 
competition  of  the  lake  carriers  was  also  felt.    As  an 


FREIGHT   RATES   IN    PRACTICE 


413 


outcome  of  this  there  was  worked  out  a  system  whereby 
the  Chicago-New  York  rate  was  taken  as  a  base  rate. 

The  rate  system  so  built  up  was  concerned  with  the 
movement  from  Central  Freight  Association  territory, 
in  which  are  located  some  8,000  stations.  Taking  the 
l)ase  rate  as  100  per  cent,  the  shorter  distance  points 
liave  rates  worked  out  on  a  percentage  of  the  base  rate. 
For  example,  on  the  movement  from  Detroit  to  New 
York,  Detroit  has  78  per  cent  of  the  Chicago  rate. 
Toledo  and  Sandusky  are  71  per  cent  points.  The  rate 
adjustment  works  westward  to  the  Mississippi  River 
crossings,  where  125  per  cent  points  are  to  be  found. 

While  the  percentage  system  was  adopted  in  1876 
there  have  been  various  readjustments  and  regroupings 
since  that  date.  Water  competition,  market  competition, 
and  the  effect  of  the  rail  movements  of  north  and  south 
lines  working  in  this  territory  have  aided  in  bringing 
about  the  system  as  it  stands  today.  The  result  is  that 
instead  of  percentage  points  there  are  percentage 
groups.  While  the  system  was  concerned  in  the  first  in- 
stance with  the  movement  eastbound,  it  now  in  general 
applies  westbound, 

A  similar  system  is  made  use  of  in  the  movement  from 
points  in  Central  Freight  Association  territory,  inter- 
mediate to  Chicago,  to  points  in  Trunk  Line  territory 
intermediate  to  New  York. 

The  basis  on  which  the  percentages  are  worked  out  is 
as  follows: 

From  an  assumed  rate  of  26  cents  from  Chicago  to  New  York 
there  was  first  deducted  the  sum  of  6  cents  to  represent  the 
fixed  terminal  expenses  at  the  points  of  origin  and  destination. 
The  remaining  19  cents  represented  the  assumed  charge  for 
the  rail  haul,  exclusive  of  any  service  at  either  terminal.  This 
rate  being  divided  by  920,  that  being  the  accepted  short  line 


414 


TRAFFIC 


r        cent  for  a  movement  from  Chicago  to  New  York  under 

for  estabhshmg  an  assumed  basis  from  any  particular  junction 
or  competitive  point  on  the  basis  of  its  mileage  to  NewYtl 

^rom  It  7-  T  P"  ""'  '""^^•P''^^  ^y  *^«  ""'"ber  of  mile, 
from  the  parhcular  pomt  to  New  York  gave  an  assumed  rate 
for  the  ra,  haul  from  that  point  exclusive  of  any  terminal 
service  at  e.ther  end  of  the  movement.  To  that  assumed  rat^ 
the  S.X  cents  was  again  added  to  cover  the  terminal  expense, 
at  the  pomts  of  ongm  and  destination.  The  result  gave  an 
assumed  rate  from  the  particular  point  to  New  York  including 
the  termmal  charges,  and  the  percentage  which  this  assum^ 
rate  bore  to  the  assumed  rate  of  25  cents  from  Chicago  to  New 
York  determmed  the  percentag,    of  the  Chicago  rate  which 

chandise.  ''""*  ""''  ^'^'^  °"  "^"^  «'^^"  «^-»  °^  -- 

To  illustrate  by  a  concrete  example,  the  short  line 

Thr^«  J'*""!  I'^d'^^^P^lis  to  New  York  is  838  mHes. 
Ihen  833  miles  times  .0206  cent  equals  17.2  cents.  To 
this  add  6  cents  for  fixed  terminals,  and  a  total  of  28  2 
cents,  or  93  per  cent  of  the  Chicago  assumed  rate  of  25 
cents,  ,s  obtained.  Therefore,  Indianapolis  is  a  98  per 
cent  point.  ^ 

54   Competition  of  lines  of  different  lengths.-Where 

W  ^1  ?'  7^''^^  °^  *"°**^^^  '^il^«y'  the  short 

hne  mUeage  rate  of  necessity  governs.    Between  Fort 

i^ii  rr  r^^^"'^'?  *^'  ^"'^*^''»"  ^^'^^  "Mileage 

Tntn^'p     i^T^l?°^^^™  ^^«'  ^"d  the  Grand 
Trunk  Pacific  449.    The  C.  P.  R.  mileage  makes  the 

tb!  r  i^T'      r^'""  .^°^*^^  ^*  ^'^^^^  *nd  Regina 
the  C.  P.  R.  mileage  is  302,  while  the  Grand  Trunk 

Pacific  IS  323  miles.    Here,  again,  the  C.  P.  R.  rate  is 


FREIGHT   RATES   IN   PRACTICE  415 

DiflFerences  in  mileage  as  between  different  routes 
connecting  two  points  are  common.  For  example,  be- 
tween Chicago  and  Kansas  City  we  have  the  following: 

Miles 

Atchison,  Topeka  &  Santa  Fe 458 

Burlington  BLoute 489 

Chicago  &  Alton 488 

Chicago  Great  Western 597 

Chicago,  Milwaukee  &  St.  Paul 498 

Rock  Island  Route 517 

Wabash 51* 

But  the  competition  is  not  necessarily  limited  to  that 
existing  between  lines  of  slightly  differing  lengths. 
Once  a  railway  is  built  the  capital  is  fixed,  and  so  in 
order  to  obtain  a  return  on  the  investment  it  may  par- 
ticipate in  traffic  which  is  handled  by  an  exceedingly 
roundabout  route.  Between  New  York  and  New  Or- 
leans there  are  about  one  hundred  all-rail  routes  which 
may  compete  for  business.  The  shortest  route  is  1,840 
miles;  the  longest  is  53  per  cent  greater.  When  such  a 
roundabout  route  competes  for  this  business  it  must,  of 
necessity,  reduce  its  rate  on  the  principle  of  what  the 
traffic  will  bear. 

Under  such  circumstances  the  anomaly  may  arise  of 
the  rate  being  controlled  by  the  longer  line  or  route,  for 
the  longer  line,  not  being  able  to  give  the  same  despatch, 
may  have  to  give  a  more  advantageous  rate.  Just  before 
the  Civil  War  the  Grand  Trunk  carried  flour  from 
Chicago  to  Portland  by  rail  and  thence  by  water  to 
Boston  by  boat  in  competition  with  all-rail  American 
lines.  From  a  situation  like  this  may  arise  so-called 
"differential"  rates. 

55.  Differential  rates. — A  diflFerential  rate  arises 
where  two  or  more  competing  carriers  agree  that  a  pre- 
scribed difference  shall  exist  between  their  respective 


416 


TRAFFIC 


rates.  This  may  be  regarded  as  a  concession  to  avert 
a  greater  cut  in  rates.  When  the  Canadian  Pacific  en- 
tered  the  field  of  through  business  it  engaged  in  the 
carriage  of  business  to  San  Francisco  by  means  of  its 
rail  route  to  its  Pacific  terminus  and  thence  by  boat  to 
destmation.  It  took  the  position  that  as  it  was  a  broken 
rail  and  water  route,  and  was  in  its  then  condition  a  weak 
route,  a  differential  should  be  allowed.  It  also  empha- 
sized the  disadvantage  it  labored  under  because  of  its 
roundabout  route— 4,020  miles  by  rail  and  water  as 
against  8,270  all-rail. 

In  1887,  the  American  lines  agreed  that  on  business 
to  San  Francisco  the  Canadian  Pacific  might  quote 
rates  lower,  by  agreed  differences  in  (  nts  per  class,  than 
the  all-rail  American  lines.  At  the  end  of  1892  the 
Canadian  Pacific  adopted  the  principle  of  charging  rates 
10  per  cent  less  than  those  of  the  American  lines.  The 
latter  contended  that  this  was  not  a  differential,  but  a 
"cut"  rate,  since  they  had  not  agreed  to  it.  The  matter 
came  to  arbitration  in  1898,  when  it  was  decided  that  the 
Canadian  Pacific  was  not  entitled  to  a  differential. 

The  Grand  Trunk  has  a  differential  freight  rate  from 
New  York  and  New  England  points,  all-rail,  as  age  .t 
the  standard  lines  to  Chicago.  It  also  has  differential 
rates  via  the  Ottawa  Division  and  Depot  Harbor  the 
rates  being  10  cents  below  the  first-class  rate  from  New 
York  and  5  cents  below  the  first-class  rate  from  Boston. 
American  lines  handling  freight  through  Canada  also 
participate  in  such  arrangements.  There  are  in  effect 
over  a  route  composed  of  the  Boston  and  Maine,  Rut- 
land, New  York  Central,  and  Michigan  Central  or 
Wabash  railways  the  same  differential  rates  as  via  the 
Grand  Trunk. 

56.  Water  competition.— An  early  example  of  water 


FUKIGIIT    HATKS    IN    I»HA(  Til  K 


417 


cDiiipetition  in  the  passenger  business  is  set  out  in  an 
ad  irtisenjent  published  in  1788  by  the  Philadelphia 
and  Haitimore  Eastern  Shore  stage  line,  which  stated 
that  its  couches  wf'iiul  carry  a  passenger  from  Philadel- 
pliiii  to  the  Susquehanna  River  for  £1  6  sh.,  and  from 
tliat  point  to  Haitimore,  37  miles  further,  free  of  charge. 
That  is  to  say,  on  the  last  37  miles  of  the  journey  it  had 
to  meet  the  competition  of  water  ca  riers. 

In  1892,  complaint  was  made  before  the  English  Rail- 
way and  Canal  Commission  that  the  rate  on  flour  and 
(jraiii  from  Bristol  to  Birmingham,  a  distance  of  141 
mill's,  was  8  sh.  Od.,  while  from  Birkenhead  to  Birming- 
ham, a  distance  of  98  miles,  it  was  11  sh.  6d,  The  com- 
mission found  that  the  difference  in  rate  was  due  to 
etliciciit  railway  and  water  competition. 

In  the  transiKjrtation  system  of  the  section  of  North 
.\inerica  which  may  be  determined  by  a  line  drawn  north 
and  south  through  Omaha  the  effect  of  the  Great  Lakes 
and  the  St.  Lawrence  is  very  important.  In  general, 
the  average  rate  which  carries  a  ton  one  mile  on  the  rail- 
way will  carry  it  three  miles  on  the  lakes.  If  the  various 
^nain  routes  to  the  seaboard  are  considered  the  im- 
])()itance  of  the  alternative  water  route  and  its  competi- 
tive effect  will  be  apparent. 

I'rom   Chicago  grain  may  move  eastward   to  the 

seaboard  by  the  follo>>ing  routes:    to  Buffalo  by  rail, 

thence  via  the  Erie  Canal  and  Hudson  River,  or  by  all 

rail  to  New  York;  to  Erie  by  lake,  thence  by  rail  to 

Philadelphia  or  Baltimore;   by  lake  to  Canadian  lake 

l)()its,  thence  by  rail  to  Montreal,  St.  John,  Portland, 

or  Boston;  by  lake  and  canal  to  New  York;  all-rail  to 

Philadelphia,  Boston,  New  York,  Baltimore,  and  New- 

])ort  News;  by  lake,  canal,  and  the  St.  Lawrence.    That 

is  to  say,  there  are  routes  to  eight  ports  on  the  North 
c— i'n-«7 


418 


THAFI'IC 


Atlantic  scalHianl.  and  the  lake  route  has  a  controllinir 
effect  over  all.  ** 

On  the  movement  from  Minneapolis  tiie  following 
routes  are  available :  all-rail  to  the  sealward  via  Sault  Ste. 
Marie;  by  rail  to  Gladstone,  Michigan,  and  thence  by 
lake  and  canal  or  other  combination;  by  rail  to  Duluth 
or  Sui)erior  and  thence  by  lake  and  canal  or  other  com- 
bination. 

Shipments  of  grain  from  the  Canadian  Northwest 
may  move:  all-rail  to  the  seaboard;  by  rail  to  Fort 
William  or  Port  Arthur  and  thence  by  lake  to  Canadian 
lake  ports  and  thence  eastward  by  rail;  or  by  lake  to 
Buffalo  and  thence  eastward  by  rail  or  other  combina- 
tion;  to  Duluth  by  rail  and  thence  eastward  by  lake  and 
rail;  or  by  lake  and  canal  combinallun;  or  by  lake,  canal, 
and  St.  Lawrence. 

As  has  been  pointed  out,  in  the  movement  to  the 
Pacific  Coast  water  competition  is  important.    To-day 
the  China  ^lutual,  or  Blue  Funnel  Line,  is  bringing  in 
monthly  to  British  Columbia  via  the  Suez  Canal  from 
three  to  five  thousand  tons  of  package  freight.    This  is 
distribute<l  east  into  Alberta.     If  the  combined  ocean 
and  rail  rate  west  to  British  Columbia  is  to  get  a  share 
of  this  business  it  must  meet  this  competition.    In  the 
movement  of  cotton  piece  goods  from  New  England  to 
China  over  the  Canadian  Pacific  and  its  connecting 
steamships  on  the  Pacific  there  has  to  be  considered  the 
rate  offering  to  China  by  way  of  the  Suez  Canal.    Meat 
shipments  from  Canada  to  London,  England,  may  move 
all-water  to  London  or  by  water  carriers  to  Liverpool 
and  by  rail  to  London.    The  water  rate  holds  down  the 
combination  rate.    Shirments  of  produce  from  Denmark 
to  Liverpool  may  move  all-water,  or  may  move  by  water 
to  the  east  coast  and  thence  by  rail  to  Liverpool. 


FRKIGIIT    IIATKS    IN    PRACTICE 


410 


Here,  again,  the  water  rate  holds  down  the  combination 
nite. 

The  Imard  has  recognized  that  rail  carriers  may  have 
to  meet  the  com{)etition  of  water  carriers.  Its  position 
in  regard  to  water  competition  is  summarized  in  the 
Complaint  of  the  Blind  River  Board  of  Trade,  decided 
Murch  12,  1018.  In  this  decision  it  in  substance  said 
tliut,  wiiile  a  ruir^  xy  was  characterized  by  a  large  invest- 
ment of  fixed  capital,  the  expenditure  of  a  sum  of  money 
whieh  would  be  suificient  only  to  construct  six  or  seven 
iiiiles  of  fully  equipped  railway  track  will  provide  a 
\vater  carrier  which  can  move  freely*  from  place  to  place 
mid  from  route  to  route  over  the  free  right  of  way  of  the 
waters.  The  railway  may,  therefore,  have  to  meet  water 
competition  at  given  points.  The  extent  to  which  it  will 
Mieet  it  is  in  its  own  discretion. 

57.  Changing  centers  of  production. — In  the  United 
States  the  westward  movement  of  the  agricultural  cen- 
ters has  had  an  influence  on  rates.  In  the  north  it  has 
lessened  the  importance  of  Lakes  Erie  and  Ontario  as 
controlling  factors.  About  the  time  the  Erie  Canal  be- 
came an  efficient  carrier  the  Genesee  Valley  in  western 
\ew  York  was  important  in  wheat  production.  Since 
the  seventies  the  center  of  wheat  production  in  the 
Fnited  States  has  been  moving  north  and  westward  until 
now  it  is  west  of  the  Mississippi. 

In  western  Canada,  the  wheat  area  is  not  reached  until 
a  point  some  four  hundred  miles  west  of  Lake  Superior  is 
reached.  This  has  increased  the  traffic  importance  of 
the  Upper  I^akes.  Coupled  with  this  is  the  fact  that  on 
account  of  this  northward  and  westward  movement  east 
and  west  lines  of  movement  from  (Georgian  Bay  are  now 
of  increasing  importance. 

In  the  southern  portions  of  the  United  States  the 


^20  TRAFFIC 

westward  movement  of  the  cotton  crop,  as  well  as  the 
development  of  the  wheat  areas  of  Kansas  and  of  Okla 
homa,  have  added  to  the  efficiency  of  ocean  compe'  ••.. 
by  way  of  the  Gulf  of  Mexico. 

In  the  United  States  this  westward  movement  of  grain 
has  created  a  competitive  area  extending  from  the  inter- 
national boundary  as  far  south  as  Kansas  and  ^Missouri 
and  west  to  the  western  boundaries  of  the  Dakotas.  Its 
effects  are  especially  noticeable  in  connection  with  the 
primary  grain  markets.  Grain  from  the  Dakotas  and 
jNIinnesota  is  normally  tributary  to  ]Minneapolis  and 
Duluth;  it  may  mrtve  to  Chicago.  The  grain  of  I^Iis- 
souri  is  normally  tributary  to  St.  Louis;  it  may  move  to 
Chicago. 

58.  Competition  of  ports.— As  has  been  seen  in  dis- 
cussing water  competition,  Chicago  has  some  eight  pos- 
sible outlets  on  the  North  Atlantic  seaboard.  With  the 
M  estward  development  of  American  railways  the  short 
line  mileages  to  the  seaboard  have  been  readjusted.  This 
is  illustrated  in  the  following  table: 

Short  rail  distances  from  some  of  the  interior  grain  markets 
and  packing-house   centers   to  New  York  and  to  Xerv  Orleans. 

.,    ^^,    ,        .       To  Saving  to 

^. .  ^^'"'^  ^ork      Xew  Orleans    New  Orleans 

t-nicaRo 912  gig 

P"!"*^-     • 1.390  1,337  53 

Minneapohs 1.321  1,268  53 

itP*"l- 1'321  1,268  53 

Sioux  City 1,422  1,258  164 

i{™a 1,402  1,070  332 

P"!Z»qVe  1.070  988  91 

bt.  Louis 1,058  695  ggg 

Kansas  City 1,335  878  457 

If,  beginning  at  Duluth,  a  line  is  traced  running  south 
to  Lake  Michigan  and  following  the  western  boundary 
of  that  lake  to  its  southern  extremity,  thence  swinging 


FREIGHT    RATES    IN    PRACTICE 


421 


southwesterly  until  the  south  Atlantic  seaboard  is 
reached  a  little  south  of  the  northern  boundary  of 
(Jcorgia,  it  will  be  found  that  all  points  west  of  this  line 
are  nearer  to  the  Gulf  ports  than  they  are  to  New  York. 

Of  course,  the  mere  question  of  distance  is  not  the  only 
controlling  factor.  The  question  of  the  volume  of  traffic 
moving,  the  matter  of  established  trade  routes,  and  the 
amount  of  ocean  tonnage  offering  at  the  port  are  im- 
j)ortant  factors.  As  between  IMontreal  and  New  York, 
the  volume  of  ocean  tonnage  offering  is  necessarily  an 
important  factor.  The  contests  between  Boston,  New 
York,  Philadelphia,  and  Baltimore  centering  around  the 
(|iiestion  what  differential  or  difference  below  the  longer 
route  to  New  York  rates  should  be  allowed  to  Boston, 
Philadelphia,  and  Baltimore  all  point  to  the  importance 
in  connection  Avith  a  transportation  movement  and  rail- 
way competition  of  established  trade  routes  and  amount 
of  ocean  tonnage  at  the  ports. 

50.  Market  or  trade  competitio  —As  industries  ex- 
jnind  they  naturally  develop  competition  in  common 
markets.  In  the  adjustment  of  their  rates  the  railways 
are  constantly  faced  with  the  question  of  this  competi- 
tion and  of  the  extent  to  which  they  w^ill  by  readjustment 
of  rates  extend  the  area  in  which  industries  may  com- 
]>ete.  It  may  happen  that  from  this,  wastes  of  trans- 
l)ortiition  will  arise  through  overlapping  of  markets. 

The  sugar  refining  industry  of  Canada  affords  a 
striking  example  of  trade  competition.  Sugar  refineries 
located  at  Montreal  and  at  Wallaceburg  compete  in 
Toronto  and  in  the  Canadian  Northwest.  A  sugar  re- 
iinery  located  in  Vancouver  meets  the  competition  of  the 
eastern  refineries  in  Manitoba.  The  Knight  Sugar  Re- 
fining Conij)any,  of  Raymond,  Alberta,  is  also  engaged 
in  the  manufacture  and  distribution  of  sugar  in  Alberta. 


422 


TRAFFIC 


What  are  the  boundaries  of  the  respective  markets? 
Where  shall  the  rates  meet? 

Sugar  moves  west  from  Montreal  on  a  fifth-class 
rate ;  it  moves  from  Vancouver  on  a  commodity  rate 
Under  this  arrangement  the  rates  meet  at  Portage  la 
Prairie.  Manitoba.  When  the  board  by  its  order  in 
the  Regma  Rates  Case  reduced  rates  westward  from 
Fort  William,  complaint  was  made  bv  the  refining 
company  at  Vancouver  that  this,  by  Wending  the 
Montreal  territory  westward,  had  curtailed  the  terri- 
tory  naturally  tributary  to  Vancouver. 

The  Canadian  Oil  Company  applied  to  the  Cana- 
dian  Railway   Commission   to  reduce  its  rates  from 
Petroha  to  the  Northwest  to  meet  the  competition  of 
American  oil  refiners  selling  in  the  same  field.    It  was 
recognized  that  the  competing  companies  had  certain 
situation  advantages,  water  competition,  and  low  cost 
of  raw  material.    On  this  state  of  facts  it  was  held  that 
the  rates,  not  being  challenged  as  unreasonable,  and 
the  trade  disadvantages  not  having  been  created  by  the 
Canadian  railways,  the  direction  asked  for  could  not 
be  given.    While  it  is  the  function  of  a  rate-regulative 
tribunal  to  deal  with  reasonableness  of  rates,  it  is  not 
concerned  with  so  equalizing  trade  profits  that  all  mav 
compete  on  an  even  keel. 

Again,  in  another  case  it  was  contended  that  cheese 
and  bacon  are  complementary  commodities  and  that 
the  price  of  cheese  in  England  is  regulated  by  that  of 
bacon  It  vvas.  therefore,  urged  that  this  should  be 
comidered  in  Canada  in  fixing  the  rate  basis  on  export 
traffic.  It  was  held  by  the  board  that  this  was  a  phase 
of  market  competition,  and  that  the  extent  to  which 
the  railways  should  consider  it  was,  if  the  rates  actually 
charged  were  not  unreasonable,  in  their  discretion 


FREIGHT    RATES    IN    PRACTICE 


49S 


Just  how  the  claims  of  competing  industries  located 
in  different  sections  of  the  same  line  of  railway  are  to  be 
adjusted  is  a  mattci*  of  extreme  delicacy  and  difficulty. 
Tlie  board  has  recognized  in  a  case  of  such  competition 
arising  from  an  industry  located  on  another  line,  that 
in  the  case  of  brick  from  Bradford,  Pennsylvania,  when 
the  Windsor  rate  on  this  article  was  higher  than  the 
Detroit  rate,  the  Detroit  rate  was  held  down  by  the 
trade  competition  of  the  similar  brick  produced  at 
other  points  in  Ohio  which  were  nearer  to  Detroit.  If 
the  brick  moving  the  longer  distance  from  Bradford 
was  to  share  in  the  Detroit  business,  it  had  to  meet  the 
Ohio  rate. 

^Market  competition  is  not  limited  to  domestic  move- 
ment alone.  The  rate  grain  can  stand  depends  upon 
tlie  price  at  which  grain  stands  in  the  world  market. 
In  that  market  Russia,  India,  Australia,  Argentina, 
Canada,  and  the  United  States  compete.  The  wheat 
of  Argentina,  which  is  for  the  most  part  grown  within 
four  hundred  miles  of  tidewater,  and  the  greater  part 
of  whose  carriage  to  Liverpool  is,  therefore,  by  water, 
competes  with  the  wheat  of  Canada  and  of  the  United 
States  which  has  a  rail  haul  of  two  thousand  miles  to 
the  seaboard.  Canadian  bacon  must  compete  in  Eng- 
land with  Danish  bacon.  Canadian  butter  competes  in 
England  with  butter  from  Denmark  and  Siberia. 
Copper  from  Butte,  Montana,  competes  with  the  water- 
borne  copper  from  the  Rio  Tinte  mines. 

60.  Improvements  in  roadbed  and  rolUng  stock. — 
The  effect  of  improved  track  and  rolling  stock  is  con- 
cerned with  the  net  profit  of  operation  rather  than  with 
the  rate  actually  charged.  But  it  has  an  indirect  effect 
upon  the  rate  in  that  it  adds  to  what  the  railway  can 
do  in  its  operation,  and,  therefore,  gives  it  an  advantage 


424 


TRAFFIC 


m  point  of  such  rate  reductions  as  are  brought  about 
l)y  tlie  factors  already  outlined.  FurtJier,  since  its 
improved  operating  condition  enables  a  large  volume  of 
ousniess  to  be  handled  more  econoniicallv,  it  permits 
the  railways,  by  lowering  rates,  to  stimulate  that  volume 
of  business  which  is  essential  to  the  full  return  from  its 
imj)rovements. 

In  the  roadbed  there  have  been  great  improvements 
ll)e  56-pound  rails  of  the  early  seventies  have  been 
replaced  with  80-,  90-  and  even  100-pound  rails,  there- 
by enabling  heavier  rolling  stock  to  be  carried.     In  the 
endeavor  to  carry  heavy  trainloads,  thereby  lessening 
unnecessary  engine  mileage,  railwavs  are  now  building 
on  easy  grades  and  curves.     Heavy  grades  and  sharp 
curves  lessen  tractive  efficiency.    The  Canadian  Pacific 
Which  had  a  4.4  grade  on  the  Field  Hill,  has  by  tunnel 
cmistruction  cut  this  in  two,  thereby  doubling  engine 
efl^cency.    The  (Jrand  Trunk  Pacific  is  being  built  on 
a  .4  grade.    The  extensive  improvements  the  Canadian 
i  acific  IS  making  in  the  Hocky  :Mountains  l.xik,  by  in- 
creasing efficiency,  to  offset  the  haulage  advantages  of 
the  easy  grades  of  the  new  lines. 

Engines  have  increased  in  weight  and  tractive  effi- 
^"'"o*'-    *;°r,^^^'"l>le,  a  Grand  Trunk  engine  built  in 
18/2  weighed  with  Its  tender  62  tons,  while  an  engine 
built  for  the  same  raihNay  in  1911  weighed  182^  tons. 
\\  Jiile  the  average  amount  hauled  per  engine  per  an- 
mim  depends,  of  course,  on  the  amount  and  nature  of 
the  traffic  offering  in  the  particular  year  and  on  tiie  M-av 
the  cars  are  loaded,  comparisons  of  the  average  tonnage 
hauled  per  engine  are  an  index  of  increasing  engine 
efficiency.    In  1908,  on  the  Canadian  Pacific  the  aver- 
age  tonnage  moved  i,er  freight  engine  was  12,983  tons- 
in  1912,  it  was  19,892.     For  the  Grand  Trunk    the 


FREIGHT    KATi:S    IN    PRACTICE 


425 


tioures  in  1908  and  1912  were  18,787  and  24,331,  re- 
spectively. 

Tlie  impetus  to  increase  in  size  of  freight  cars  came 
I'loin  the  construction  in  the  United  States  and  Canada 
ill  the  early  seventies  of  narrow-jrauge  lines.  In  the 
endeavor  to  introduce  economies,  increase  in  carrying 
capacity  was  looked  to.  In  187«,  the  standard  capacity 
ol"  the  ordinary  freight  car  was  15  tons.  To-day  80  per 
cent  of  the  freight  cars  of  the  Grand  Trunk  have  a 
carrying  capaci*v  of  30  tons.  The  15-ton  car  has  prac- 
tically disapp(  ed.  On  this  railway  6  per  cent  of  the 
cars  are  of  20-ton  capacity,  while  40-  and  50-ton  cars 
account  for  12  j)er  cent. 

The  30-ton  car  may  he  regarded  as  the  standard 
jreiieral-purpose  car  to-day.     The  larger  cars  are  used 
for  heavy  bulk  commodities.    Under  the  railway  rules,  a 
car  may  he  loaded  10  per  cent  above  its  marked  capacity. 
Ihit  tlie  extent  to  which  cars  on  the  average  can  be 
loaded  nearly  to  their  carrying  capacity  depends  on  com- 
mercial conditions  and  whether  tonnage  can  be  held  until 
a  maximum  load  is  obtained  in  the  car.    While  the  large 
cars  used  by  ten  of  the  constituent  companies  of  the 
Tiiited  States  Steel  Corporation  averaged  in  1912  36 
tons  per  car,  the  average  loading  in  Canada  was  less  than 
half  of  this.    From  the  standpoint  of  the  railway,  there  is 
not  only  the  advantage  of  the  larger  amount  which  can  be 
handled  in  the  larger  car,  thus  economizing  in  engine 
and  train  mileage;  there  is  also  an  increase  in  the  pay 
weight  per  car.    The  tare  or  weight  of  the  empty  car 
does  not  increase  in  the  same  ratio  as  carrying  capacity. 
Thus,  out  of  the  total  loaded  weight  of  a  car,  the  tare 
of  the  20-ton  car  is  41  per  cent;   of  the  30-ton  car,  35 
per  cent;  of  the  40-ton  car,  32  per  cent;  and  of  the  50- 
ton  car,  80  per  cent. 


CHAPTER   V 


PHASES  OF  RATES  AND  TARIFFS 

61.  Freight  tariffs  and  the  Railuay  ^cf.— Every 
tariff  carries  on  its  face  the  senal  number  of  the  rail- 
way's issue;    also  the  date  of  issue  and  the  effective 
date.     For  example,  the  Canadian  Pacific  tariff  deal- 
mg  with  stop-off  on  lumber,  issued  January  8,  1913 
effective    February    10,     1913,    bears    the    notation 
C .  P.  R.  tariff  Xo.  E  2119,  cancelling  Xo.  E  2409.    In 
addition,  it  has  to  bear  a  Canadian  Railway  Commission 
serial  number— in  this  case  it  is  C.  R.  C.  X^o.  E  2313.    A 
tariff  may  be  amended  by  a  supplement.    In  the  United 
States  the  Interstate  Commerce  Commission  rule  is  that 
the  number  of  supplements  which  may  be  outstanding 
IS  governed  by  the  size  of  the  tariff.    Tariffs  filed  with 
the  Interstate  Commerce   Commission  must  bear  an 
I.  C.  C.  number.     Tariffs  concerned  with  the  transit 
trade  or  with   business   from   the    United    States  to 
Canada  or  vice  versa  bear  the  serial  numbers  of  both 
commissions. 

Under  the  Railway  Act,  freight  tariffs  are  classed 
as  standard,  special,  and  competitive. 

62.  Standard  tariff. —The  standard  freight  tariff  or 
tarifl's  specify  the  maximum  mileage  tolls  to  be  charged 
for  each  class  of  the  freight  classification  for  all  dis- 
tances covered  by  the  railway.  The  distances  are  ex- 
pressed m  groups.  The  Railway  Act  permits  relatively 
greater  distances  to  be  included  in  these  groups  for  the 

426 


PHASES   OF    RATES    AND   TARIFFS 


427 


\ou}icv  than  for  the  shorter  hauls.  The  standard  freight 
tiiritt'  has  to  be  filed  with  the  board  for  its  approval. 
\N'hen  it  is  approved  it  has  to  be  published  in  two  con- 
secutive weekly  issues  of  the  Canada  Gazette  before  it 
i:iii  l)ecome  effective. 

The  standard  freight  tariffs  of  the  Canadian  Pacific 
;uc  representative  of  other  railways  operating  in  the 
same  territory.  The  following  groups  of  standard 
tariff  territory  of  the  Canadian  Pacific  may  be  distin- 
guished: (a)  from  Sudbury  east  to  the  Atlantic;  (b) 
from  Sudbury  to  Port  Arthur;  (c)  Manitoba  and 
Ontario,  west  of  Port  Arthur;  (d)  Saskatchewan  and 
Alberta,  east  of  Canmore;  (e)  Alberta  west  of  Can- 
more  and  British  Columbia;  (f)  steamboat  service  in 
British  Columbia  inland  waters;  (g)  the  Kootenay 
territory;    (h)  the  Crow's  Nest  territory. 

The  tariffs  may  be  summarily  described : 

A,  Local  mileage  freight  tariff  No.  1  applying  Sud- 
bury and  east  thereof: 

Rates  are  quoted  by  mileage  grgups,  which,  up  to 
100  miles,  advance  by  5-mile  steps.  From  100  to  200 
miles,  the  steps  are  by  10  miles,  while  from  200  to  1,000, 
the  limit  of  the  tariff,  the  groups  are  25  miles.  The 
late  quoted  covers  the  entire  group.  Up  to  100  miles 
the  first-class  rate  is  stepped  two  cents  for  each  group. 
In  the  case  of  the  tenth  class  the  rate  is  stepped  by  one 
cent  for  each  rate  group,  but  here  the  rate-grouping 
heeomes  irregular.  Up  to  10  miles  the  rate  is  quoted  on 
a  5-mile  group;  beyond  to  100,  the  rate  is  quoted  either 
on  a  10-mile  or  a  15-mile  group.  Beyond  100  miles  the 
rate  steps  are  irregular. 

B.  Sudbury  to  Port  Arthur: 

This  tariff  covers  mileages  up  to  3,000  miles.  Up  to 
100  miles  the  groups  are  stepped  every  5  miles;   from 


ns 


TRAFFIC 


to  1,600  miles  there  are  23-niile  groups,  while  from 
1.600  to  8.000  the  groups  are  50  miles.    Up  to  100  miles 
w.th  the  exception  of  the  20-25-mile  group,  the  first- 
class  rates  are  stepped  two  cents  per  group.     In  the 
case  of  tenth  class,  the  rates  advance  one  cent  by  5-mile 
groups  up  to  25  miles.    From  25  miles  to  100  miles  the 
rate  groups  are  irregular,  varying  from  10  to  15  miles 
Beyond  100  miles  the  rate  steps  are  irregular. 
C.  Manitoba  and  Ontario,  tccst  of  Port  Arthur- 
This  covers  a  mileage  of   1,500  miles.     The  first 
group  covers   10  miles.    From   10  miles  to   100  the 
mileage  groups  are  5  miles  each.     From  100  to  500 
miles  they  advance  by  lO-mile  steps.    The  balance  ad- 
vances on  25-mile  steps.    The  rate  advances  follow  the 
same  method  as  above  indicated  under  B 

AWerfa"'^''*'^'''''''   """^  ^^^"'*'''   ^^*'   ^^  Canmore, 
This  tariff  covers  1,500  miles.     The  mileage  groups 
are  the  same  as  in  the  previous  tariff.     The  rates  ad- 
vance  by  groups  irregularly. 

Cdumbh'^'''  ""''*  ""^  <^'««mor^,  Alherta,  and  British 
This  tariff  covers  600  miles.    Up  to  100  miles  group- 

100  to  800  miles  there  are  10-mile  steps.  Beyond  300 
miles  the  steps  are  m  25-mile  groups.  The  *rates  ad- 
vance  by  groups  irregularly.  Here  the  mileage  rates 
are  based  on  the  local  mileage  tariff  (Xo.  270),  which 
was  issued  m  1894.  In  building  up  the  mileage,  the 
railway  has  considered  that  the  higher  cost  of  operation 
m  the  mountains  justifies  assumed  mileage  being  used. 
From  Vancouver  to  Yale,  at  the  head  of  navigation  on 
the  Fraser  River,  actual  mileage  is  used.    From  Yale 


PHASES    OF    RATES    AND    TARIFFS 


420 


to  Uevelstoke,  each  mile  counts  as  li  miles,  while  from 
Ktvelstoke  to  Canmore  each  mile  counts  as  2  miles. 
Oil  the  Crow's  Nest  mileage,  dealt  with  below  under 
heading  /,  each  mile  was  also  made  to  count  2  miles. 

F.  Okanagan  Lake  steamer  service: 

This  tariff  covers  100  miles.  The  first  group  is  10 
miles.  Beyond  this  the  groups  advance  by  5-mile  steps. 
Oil  tirst-class  up  to  30  miles  the  first-class  rate  is 
stci)i)ed  3  cents  per  group;  beyond,  the  steps  are  2 
ctiits.  The  tenth-class  rates  are  stepped  one-half  cent 
])vr  group. 

G.  Slocan,  Kootenay,  and  Trout  Lakes  steamer 
Kcrvicc: 

This  tariff  covers  130  miles.  Up  to  100  miles 
the  mileage  groupings  are  the  same  as  in  the  pre- 
vious tariff.  Beyond,  the  steps  are  in  10-mile  groups. 
On  first-class  traffic,  the  first-class  rates  are  stepped 
irregularly  3  cents.  On  tenth  class  the  rate  advances  by 
one-half -cent  steps. 

//.  Nakttsp  and  Slocan,  Kootenai/  and  Arrowhead j 
Columbia  and  Kootenay,  and  Columbia  and  Western 
Railicays: 

This  tariff  covers  200  miles.  The  groupings  as  to 
the  100-mile  and  200-mile  divisions  are  the  same  as 
under  F.  From  10  to  15  miles  the  first-class  rate  is 
advanced  by  6  cents;  the  remaining  steps  up  to  90 
miles  are  on  a  4-cent  advance.  From  90  to  100  there 
is  a  2-cent  advance  on  each  step.  Beyond  100  miles 
the  steps  are  irregular.  The  tenth-class  rate  proceeds 
l)y  one-cent  steps  for  each  group  up  to  50  miles;  be- 
yond 50  and  up  to  200,  in  general  the  mileage  group 
to  which  the  rate  applies  is  10  miles. 

/.  Craio's  Nest,  B.  C,  and  west  to  Kootenay  Land- 
ius,  B.  C,  inclusive: 


ISO 


THAFFIC 


This  tariff  covers  730  miles.  The  grouping  up  to 
100  miles  is  the  same  as  under  F.  From  100  to  800 
there  are  10-mile  groups,  while  in  the  balance  of  the 
mileage  there  are  23-mile  groups.  On  first  class  the 
rates  are,  with  one  exception,  stepped  4  cents  for  each 
group.  On  tenth  class  up  to  100  miles  the  rates  on  the 
groups  up  'o  60  miles  are  stepped  1  cent  for  each  5-mile 
group;  from  60  to  100,  in  general  there  are  10-mile 
groups.  Beyond  100  miles  the  rate  groupings  are 
irregular. 

The  standard  mileage  tariffs  above  referred  to  apply 
in  the  absence  of  special  tariffs  quoting  lower  rates. 
They  also  apply  on  interchange  business,  the  rule  being 
that  m  a  movement  from  a  higher  tariff  division  to  a 
lower,  or  vice  versa,  the  higher  rate  applies. 

Reference  to  the  figures  given  in  connection  with  the 
standard  tariffs  will  show  that  the  rate  scales  are  dif- 
ferent in  difl'erent  sections.  For  the  purposes  of  com- 
parison the  table  on  the  opposite  page  covering  rates  for 
the  first  100  miles  may  be  consulted. 

It  must  be  remembered  that  these  standard  rates  are 
simply  maximum  rates  and  in  no  way  indicate  the 
actual  rates  under  which  shipments  move.  They  applv 
oidy  where  there  are  no  lower  special  tariffs.  It  is  im'- 
possible  to  make  any  general  statement  of  how  much 
ower  the  special  tariflFs  are  in  any  particular  section 
than  are  the  standard  tariffs  for  that  section.  It  is  safe 
to  say  that  from  90  per  cent  to  05  per  cent  of  the  traffic 
moves  on  rates  lower  than  standard. 

63.  Special  and  competitive  tariffs.— Special  and 
competitive  freight  tariffs  do  not  require  the  approval 
ot  the  board  before  becoming  operative.  They  come 
into  force  upon  filing  with  the  board,  in  compliance 
uith  the  regulations  of  the  Railway  Act.     A  special 


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431 


432 


TKAFFIC 


tariff  reducing  existing  rates,  in  addition  to  being  filed 
with  the  board,  requires  that  for  three  days  before  the 
cffectiA-e  date  of  the  tariff  it  sliall  l)e  on  file  in  everv- 
station  or  oflfice  of  the  company  where  freight  is  re- 
ceived, or  to  which  freight  is  carried  under  the  tariff 
in  question,  and  that  there  shall  Ik  i)ublic  notice  at  such 
place  as  to  where  tariff  may  be  seen.     In  the  case  of 
mcreases  of  rates  there  is  a  similar  provision  except 
that  thirty  days'  public  notice  is  required.     Competi- 
tive tariffs  are  not  under  any  obligation  as  to  public 
notice,  this  matter  lieing  left  to  the  discretion  of  the 
board  to  fix  such  regulations  as  it  may  deem  necessary. 
To   meet   temporary  emergency   conditions   special 
rate  notices  may,  without  publication.  l)e  issued  quot- 
ing reduced  rates  on  specific  shipments  between  points 
on  the  railway  which  are  not  com[x.'titive.     It  is  pro- 
vided that  the  railway  may  issue  these  rate  notices  at 
Its  discretion,  to  helj)  to  create  trade  or  develop  the 
business  of  the  company,  or  if  it  be  in  the  public  interest, 
and  not  other^vise  contrary  to  the  provisions  of  this 
act.     The  special  rate  notice  has  to  be  filed  with  the 
board,  and  is  operative  only  for  a  specific  shipment. 
It  must  also  specify  the  reason  for  issuance  and  the 
rate  which  would  otherwise  have  been  effective. 

In  practice,  the  railways  have  been  permitted*  under 
the  provision,  so  to  provide  for  the  prompt  shipment 
of  any  freight  which  may  unexpectedly  offer  and  for 
which  no  suitable  tariffs  have  been  prepared,  there 
being  the  condition  that  the  filing  and  publication  of  the 
tariffs  shall  be  immediately  proceeded  with.  Such 
special  notices  may  also  cover  the  disposition  of  a  ship- 
ment which  has  been  forwarded  to  a  UTong  destination, 
or  which  may  have  been  refused  by  the  consignee. 
Small  sample  shipments,  e.  g.,  of  ore,  may  be  carried 


PIIASKS    OF    UATKS    AM)    TAHIFFS 


433 


iinrier  such  notice  for  testing  puri)oses,  actual  weight 
at  carload  rate  applying. 

Formerly  such  a  notice  might  cover  the  removal  of 
live  stock  by  rail  from  exhausted  grazing  grounds  to 
new  pastures  on  tlie  ranches  of  the  Northwest  for  sub- 
sequent reshipment  to  the  markets.  With  the  change 
in  agricultural  conditions  the  need  for  this  has  passed. 
The  railways  are  also  jK'rmitted  under  such  an  arrange- 
ment to  carry  fuel  for  their  employees  at  reduced  rates. 

(J-t.  Transcontinental  raten. — When  the  Canadian 
Pacific  entered  the  field  of  through  traffic  at  the  Pacific 
Coast  it  adopted  in  a  general  way  the  system  as  to 
terminal  points  which  it  found  in  use  on  the  American 
railways  to  the  south.  These  had  been  affected  by 
various  rate  adjustments  in  which  the  competition  by 
way  of  the  Isthmus  of  Panama  and  Cape  Horn  had 
played  an  important  part.  The  movement  by  way  of 
Cape  Horn  is,  so  far  as  the  movement  from  the  eastern 
to  the  western  coast  of  North  America  is  concerned,  of 
diminishing  importance.  Since  1900  a  few  chartered 
sailing  vessels  have  each  year  carried  cargoes  around  the 
Horn.  The  Panama  Railway  has  been  overshadowed 
in  public  interest  by  the  Panama  Canal.  But  the  rail- 
way has  been  an  important  factor.  Before  it  became 
the  property  of  the  United  States  government,  the 
United  States  railways  had  been  able  to  make  it  simply 
a  differential  rate  route.  The  route  by  way  of  the  rail- 
way across  the  Isthmus  of  Tehuantepec  is  of  impor- 
tance, and  will  be  of  increasing  importance. 

In  the  tariff  covering  rates  from  eastern  Canada  to 
British  Columbia  rates  are  quoted  to  fifty-three  "British 
Columbia  Coast  terminals"  and  to  twenty-three  other 
points  which  take  rates  made  up  by  adding  to  the  termi- 
nal rate  certain  arbitraries  or  differences.  The  movement 


C— III— 28 


434  TRAFFIC 

is  subject  to  the  Canadian  classification.  The  eastern 
points  of  origin  are  grouped,  as  Toronto  and  Montreal; 
Sherbrooke,  Quebec,  Cacouna,  and  St.  John,  N.  B.; 
iMulgrave;  Sydney.  P'or  other  points  there  are  speci- 
fied arbitraries  which,  when  added  to  the  rate  from  the 
rate  point,  will  give  the  total  rate. 

The  rates  charged  from  eastern  Canada  on  trans- 
continental  freight  are  based  ujion  the  rates  charged 
by  American  railways  on  transcontinental  traffic  origi- 
nating at  Chicago.  To  the  class  rates  from  Chicago 
are  added  certain  arbitraries  to  cover  the  haul  east 
thereof  from  points  in  eastern  Canada.  For  example, 
these  arbitraries  are  in  cents  per  100  pounds  by  classes, 
as  follows,  in  the  case  of  the  movement  from  Montreal 
or  Toronto: 

J^^^*  5  67  89         10 

«>        18         15        13         10         8         7        7        7        7 

While  the  traffic  originating  in  the  eastern  states 
is  subject  to  kt-n  water  competition  the  water  com- 
petition in  eastern  Canada  is  much  less  active.  The 
class  traffic  originating  at  Chicago  is  also  less  influenced 
by  water  competition.  The  similarity  in  respect  of 
lessened  water  competition  is  considered  by  the  rail-, 
ways  as  justifying  Chicago  being  taken  as  a  basing 
point.  The  method  adopted  results  in  the  following 
class  rates: 

In  CENTg  PER  Class  per  100  Pounds 

lut    ind    3rd     kth     r,th     fith      Tth     Hih     {Hh     KHk 

Toronto     or    Montreal  ~ 

Shrrlr^ke.Qu.bcc.Ca.  »«>«'«*«>««>  »««  '«  I«  118  ...       103 

eouna,    or   St.    John, 

.,^/B  370    3«1     m    <tt5  190  190  153  1«8  108 

MulRrave  374     3M    «68    ««8  m  19«  155  XU  HO 

^y*'n«^y  378     3«8    «71     «30  194  104  157  187  '           IIS 


PHASES    or    RATES    AND    TARIFFS 


435 


The  ninth-class  rate  is  not  given,  as  this  class  covers 
live  stock. 

While  class  rates  are  thus  quoted  t'ley  are  in  the  main 
iK'f>ligible,  since  commodity  rates  e  quoted  on  over 
.'i.ooo  items,  vhich  cover  in  their  . lusive  sweep  not 
only  flour,  furniture,  iron  and  steel  and  their  manu- 
faciiires,  tobacco,  vegetables,  but  also  skirt  boards, 
^ro-carts,  playing  cards,  paper  fasteners,  wax  tapers, 
zithers. 

In  the  transcontinental  movement.  United  States  rail- 
ways are  found  participating.  For  example,  in  the 
lines  mentioned  as  operating  via  certain  gateways  are 
the  "Soo"  line,  the  Great  Northern,  the  Burlington,  and 
the  Union  Pacific. 

During  the  season  of  lake  navigation  there  is  a  dif- 
ferential lake  and  rail  route  via  Duluth,  Fort  William, 
Tort  Arthur;  or  Westfort.  The  rates,  which  include 
marine  insurance  on  the  lakes,  are  less  than  the  all-rail 
lates  to  and  from  the  same  points  by  the  following 
differences: 


<'lii<isi-.s 1        «        S        4 

(Vrit>  per  100  pounds 10       8        7        6 


5  6        7        8        0        10 

6  S        S        S        5        S 


In  the  movement  eastbound  from  British  Columbia  to 
eastern  Canada,  class  rates  are  built  on  the  same  gen- 
eral system  as  on  the  westbound  movement.  Here, 
a^ain,  the  commodity  movement  is  the  important  one. 
Aside  from  Oriental  traffic,  not  far  from  80  per  cent  of 
the  transcontinental  traffic  eastbound  is  concerned  with 
1  limber,  shingles,  canned  goods,  canned  salmon,  and 
pickled  fish.  Practically  all  the  movement  is  on  com- 
modity tariffs. 

05.  Digfrihuthe  rates. — In  Ontario,  in  the  early  days, 
the  Grand  Trunk  competing  with  the  Great  Western 


436 


THAFFIC 


and  its  connecting  boat  lines  put  in  competitive  rates  to 
common  (that  is,  competitive)  points.  In  the  handling 
of  merchandise  the  establishment  of  jobbing  or  dis- 
tributing points  naturally  develops.  The  railways  have 
in  their  rates  shown  recognition  of  such  points.  While 
it  may  be  queried  as  to  what  extent  a  distinction  in  rate 
between  a  place  which  has  so  established  a  distributing 
business  and  one  which  has  not  is  justifiable,  the  railways 
have  in  granting  such  rates  recognized  that  they  have 
not  only  the  carload  business  in,  but  also  the  distributive 
business  out,  normally  in  less  than  carloads. 

Distributive  tariffs  are  of  such  a  nature  that  the  rail- 
ways are  constantly  faced  with  demands  for  readjust- 
ments. A  new  jobbing  center  may  develop.  It  nat- 
urally desires,  when  distributive  rates  are  in  effect,  that 
it  should  have  such  rates.  But  distributive  rates  and  the 
recognition  of  distributive  areas  tributary  to  certain 
centers  are  like  a  pair  of  scales.  Anything  that  affects 
one  scale  affects  the  level  of  the  other;  and  so  one  change 
may  lead  to  a  demand  for  another. 
^  The  tariffs  given  to  distributing  points  are  known  as 
"town  tariffs."  The  various  points  so  treated  may  either 
be  distributing  or  manufacturing  centers.  In  effect  they 
may  be  regarded  as  rate-basing  points.  The  "town 
tariffs"  in  Ontario  and  east  to  Montreal  were  readjusted 
by  the  order  of  the  board  in  the  International  Rate  Case 
^v•hich  was  decided  in  1907. 

66.  International  Rate  Case.— It  had  long  been  a 
source  of  complaint  that  the  rates  eastward  to  Mon- 
treal exceeded  those  westward  fiom  Montreal.  Appli- 
cation was  made  by  the  Toronto  Board  of  Trade  that 
this  discrepancy  be  remo>ed.  It  developed  that  in 
order  to  deal  properly  with  the  matter  is  was  neces- 
sary  to  "lave  a  general  rearrangement  of  the  class  rates 


PHASES   OF    RATES    AND    TARIFFS 


437 


hctweeii  all  points.  Coupled  with  this  complaint  was  a 
I'lirther  complaint  as  to  international  rates  on  the  ground 
that  the  rates  from  Detroit  were  lower  than  the  rates 
fiom  Windsor,  just  east  across  the  river.  It  was  recog- 
iii/c(l  that  if  the  rate  from  Windsor  was  reduced  this 
would  necessitate  the  scaling  down  of  rates  to  inter- 
mediate points.  So  the  question  of  the  complaint  ad- 
A  a  need  by  the  Toronto  Board  of  Trade  as  to  Montreal 
rates  westbound  versus  Toronto  rates  eastbound  became 
interrelated  with  the  complaint  of  the  Canadian  Manu- 
taeturers'  Association  as  to  international  rates. 

The  traffic  from  the  Detroit  River  was  affected  both 
liy  the  Official  and  by  the  Canadian  Classification.  It 
>\  as  impossible  to  harmoni/ie  these,  as  they  are  built  up 
ill  a  different  manner.  What  was  done  was  to  take  the 
existing  first-class  rate  from  Detroit  and  to  scale  down 
the  rates  from  Canadian  points  eastward  accordingly; 
and  it  was  then  directed  that  the  rates  from  Canadian 
points  on  the  Detroit  and  St.  Clair  River  frontier  to  all 
points  east  to  the  Atlantic  and  north  to  the  Ottawa  River 
should  in  no  case  exceed  the  rates  from  Detroit  and  Port 
Huron. 

Direction  was  given  that  the  "to^vn  tariffs"  then  in 
existence  be  reduced  so  as  to  place  them  all  on  the 
same  mileage  scale.     The  scale  directed  to  be  adopted 
eovered  up  to  560  miles.     It  may  be  summarized  as 
follows: 
n)   Up  to     5  miles,  8  cents  {)er  100  lbs.  1st  class. 
(4)       6  to    20  miles,  "i  cents  increase  for  each  five  -   mile  step 
CJ)     21  to    80      "      2      *'  •*         '*      "    ten 

(4)     81  to  110      "      2      "  "         *'      "    fifteen 

!.i)    111  to  200      •'      2      "  "         **      "    twenty 

Hi)   201  to  440      "      2 "    thirty 

(7)   441  to 560      ••      2      "  forty 

It  was  found  necessary  in  making  this  rearrangement 
to  re-group  the  existing  rate  points.    The  mile«ge  pro- 


438 


TRAFFIC 


\ided  for  in  the  scale  covered  as  far  as  ^lontreal.  Be- 
yond Montreal  to  Quebec  the  through  rates  from  the 
territory  between  ^Vindsor  and  Toronto  and  from  the 
northern  portion  of  the  westerly  peninsula  of  Ontario 
were  to  be  built  up  by  the  addition  of  arbitraries. 

The  readjustment  thus  brought  about  represents 
roughly  a  reduction  of  25  per  cent  from  the  standard 
rates  up  to  500  miles.  The  effect  of  the  reduction  goes 
further.  It  is  not  limited  to  the  "town  tariff"  points 
alone.  From  and  to  intermediate  points  the  "town 
tariff"  applies  until  the  standard  tariff  becomes  lower. 

67.  Tozcn  tariff's  in  the  east.— Bast  of  Montreal  in 
the  Province  of  Quebec  and  in  the  provinces  of  New 
Brunswick  and  Nova  Scotia  "town  tariffs"  also  exist. 
These  cannot  be  expressed  in  terms  of  any  general  per- 
centage of  the  standard  tariff. 

In  the  westward  movement  from  eastern  Canada  to 
the  Northwest  there  is  not  only  the  all-rail  movement, 
but  also  the  lake  and  rail  movement,  which  is  on  a  lower 
basis  to  meet  the  lake  competition.  Goods  may  be  car- 
ried all-rail  or  by  lake  and  rail,  or  between  certain  points 
by  all-water.  For  example,  the  all-rail  rate  fifth  class 
from  London  to  Sault  Ste.  :Marie  is  35  cents.  By  lake 
and  rail  it  is  25  cents.  In  the  movement  by  water  by 
independent  water  carriers  Sault  Ste.  Mane  and  Fort 
William  are  blanketed  on  bar  iron  and  other  iron 
and  steel  commodities  with  a  rate  of  174  cents.  The 
railways  have  met  this  competition  by  quoting  a  lake 
and  rail  commodity  rate  of  19^  cents  to  the  same  points.  ' 

While  on  the  lake  and  rail  movement  through  rates 
are  worked  out  by  the  railways  and  their  connecting 
water  carriers,  the  independent  boat  lines— for  example, 
the  Inland  Lines,  the  Canadian  Lake  Line,  and  the 
^Merchants'  :Mutual— do  not  make  joint  rates  with  the 


PIIASKS    OF    RATES    AND    TARIFFS 


439 


railways.  They  base  on  the  same  rates  from  Fort 
WiUiam  or  Port  Arthur  as  the  lake  and  rail  lines  do  on 
traffic  beyond.  While,  of  course,  from  December  to 
the  end  of  April  the  lake  route  is  closed,  it  is  contended 
by  tlie  railways  that  its  competitive  effect  is  pervasive 
tlnoughout  the  year.  I'or  goods  can  be  and  are  shipped 
forward  during  tlie  navigation  season  to  the  head  of  the 
lakes,  where  they  are  warehoused  and  shipped  out  from 
time  to  time  during  the  winter. 

08.  Some  objections  overcome. — When  distributing 
business  develojjed  in  Winnipeg  there  arose  complaint 
of  competition  from  eastern  Canada.  Take  a  point, 
say,  100  miles  west  of  Winnipeg,  and  the  situation  arose 
that  the  through  rate  on  a  carload  of  groceries  from 
Hamilton  to  this  point  would  be  less  than  the  rate  from 
Hamilton  to  Winnipeg  and  the  local  out.  As  an  out- 
come of  much  discussion  and  agitation,  Winnipeg  was 
oiven  the  "traders'  tariff"  arrangement.  Under  this 
tariff,  merchandise,  when  shipped  into  Winnipeg  from 
an  eastern  point  and  warehoused,  paid,  when  shipped 
out,  the  balance  of  the  through  rate  from  Winnipeg. 
That  is  to  say,  to  a  point  100  miles  beyond  it  would  get 
the  same  rate  treatment  as  if  the  shipment  had  moved 
(hrect  from,  say,  Hamilton  to  the  point  100  miles  be- 
yond. There  had,  however,  to  be  i)aid  in  connection  with 
the  stop-over  the  cartage  and  handling  charges.  These 
a\  eraged  8  cents  per  100  pounds  on  the  first  four  classes 
and  6  cents  on  the  fifth  class.  Under  this  arrangement 
!>.)  per  cent  of  the  freight  westbound  from  Winnipeg 
moved  on  this  tariff.  Subsequently,  Brandon,  Regina, 
and  Calgary  were  given  the  same  arrangement.  In 
HK)7,  this  tariff  arrangement  was  found  by  the  board 
to  be  discriminatory,  since  it  was  limited  to  certain 
l)laces,  consignors,  and  consignees. 


440 


TKAFFIC 


The  ariau^renient  which  was  next  put  in  and  which  is 
still  in  force  is  one  whose  hasis  is  affected  by  the  read- 
justments in  rates  brought  al)out  by  the  subsidy  given 
to  the  Canadian  Pacific  under  the  Crow's  Nest  agree- 
ment and  by  the  Canadian  Northern,  as  a  result  of  ar- 
rangements  with  the  Province  of  Manitoba.  These 
arrangements,  which  are  somewhat  complicated,  are  set 
out  in  the  Kegina  Rate  Case.  Put  in  a  summary  way, 
the  effect  is  that  in  Manitoba  the  "town  tariffs"  are  30 
I)er  cent  below  the  uniform  mileage  tariff  of  1894,  while 
in  Saskatchewan  and  Alberta  they  are  22i  per  cent, 
and  in  British  Columbia  15  per  cent  below. 

The  following  list  sets  out  practically  all  the  "town 
tariff"  points  in  Canada: 

Nova  Scotia  and  \ew  Brukswick. 

Halifax,  X.  S.  Woodstock,  N.  B. 

St.  John,  N.  B.  Fredericton,  N.  B. 

West  St  John,  N.  B.  Campbellton,  N.  B. 

St.  Stephen,  N.  B.  Echnundston,  N.  B. 


Ql'EBEC. 

Montreal  and  its  groupe<l 

terminals. 
Lacliine,  Que. 
Dominion,  Que. 
St.  Johns,  Que. 
Ibenille,  Que. 


St,  Hyacinthe,  Que. 
St.  Rosalie  Jet.,  Que. 
Sherbrooke,  Que. 
I.ennoxville,   Que. 
Quebec,  Que. 


OxTARIO. 


Aurora. 

Barrie. 

Belleville. 

Berlin. 

Bowmanvillc 


Brantford. 

Bridgeburg. 

Brockville. 

Chatham. 

Cobourg. 


PHASES    OF    RATES    AND    TARIFFS 


441 


OirtAMO.— Continued.                                                ■ 

CoIIingwood. 

Peterboro.                                       H 

Cornwall. 

Petrolia.                                            H 

Depot  Harbour 

Port  Dalhousie.                               H 

Dcseronto. 

Port  Hope.                                      I 

Doon. 

Prescott.                                          H 

Dundas. 

Preston.                                           H 

Elora. 

St.  Catharines.                                 H 

Fergus. 

St.  Marys.                                       H 

Gait. 

St  Thomas.                                     Il 

Gananoque. 

Sarnia.                                             HI 

Guelph. 

Stratford.                                          M 

Hamilton. 

Sudbury.                                           jM 

Hespeler. 

Sault  Ste.  Marie.                             ;H 

IngersoU. 

Thorold.                                           || 

Kingston. 

Toronto.                                            \ 

Lindsay. 

Trenton.                                          j 

London. 

Walkerton.                                      j 

Meaford. 

Waterloo. 

Merritton. 

Welland. 

Midland. 

Welland  Junction.                           | 

Napanee. 

Whitby. 

Newmarket. 

Wiarton. 

Niagara  Falls. 

Windsor. 

North  Bay. 

Wingham. 

OriUia. 

Woodstock. 

Oshawa. 

Port  Arthur. 

Ottawa. 

Fort  William. 

Owen  Sound. 

Westfort. 

Parry  Sound. 

Kenora. 

Paris. 

Keewatin. 

Manitoba. 

Winnipeg. 

Brandon. 

St.  Boniface. 

Portage  la  Prairie. 

i 

442 


TRAFFIC 

Saskatchewan. 

Kegina. 

Battlcford. 

Moose  Jaw. 

North  Battlcford. 

Yorkton. 

Prince  Albert. 

Saskiitoon. 

Albebta. 

Calgary. 

Strathcona. 

VVcyburn. 

Edmonton. 

Cttiiirose. 

Medicine  Hat. 

Lethbridge. 

Bbitksh  Columbia. 

Fcrnic. 

Revelstoke. 

Cranbrook. 

Westminster. 

Nelson. 

Vnncou\'er. 

Kosslaiul. 

Victoria. 

GO.  Ea-port  and  import  rates.— In  England  the 
question  of  export  and  import  rates  has  engaged  much 
attention.  In  1908,  the  Railway  and  Canal  Commis- 
sion, in  the  Spillers  &  Bakers  Case,  recognized  that  a 
low  "shipment"  rate  was  necessary  to  obtain  traffic.  It 
was  considered  impossible  to  raise  this  rate,  and  the  dis- 
similarity of  circumstances  did  not  warrant  a  compari- 
son of  the  higher  domestic  rate  with  the  lower  export 
rate.  A  briquette  manufacturing  firm  claimed  it  was 
unduly  discriminated  against,  since  it  paid  the  domestic 
rate  on  its  raw  material,  while  the  manufactured  prod- 
uct came  into  competition  abroad  with  coal  carried  on 
a  low  export  rate.  Here,  again,  the  commission  upheld 
the  principal  of  export  rates,  and  further  found  that  the 
railway  was  under  no  obligation  to  regulate  its  charges 
with  reference  to  the  ultimate  competition  complained  of. 

70.  Lore  import  rate  justified.— While  in  general 
there  has  not  been  great  objection  to  an  export  basis 
lower  than  that  of  the  domestic  rate,  England  being  an 


PHASES  OF  RATES  AM)  TARIFFS 


443 


exporting  nation,  there  has  been  in  England  much  ob- 
jection to  low  import  rates  which  it  has  been  considered 
l»eai-  unfairly  on  the  domestic  trade  which  pays  the 
liijflier  rate.  In  the  United  States  the  Interstate  Com- 
merce Commission,  in  dealing  in  the  Alabama  Midland 
Case  with  a  lower  rate  basis  on  the  rail  portion  of  the 
ini|M)rt  rate  than  was  granted  on  the  same  portion  on  a 
(loniestic  movement,  held  that  the  circumstances  were 
not  dissimilar,  and  that  the  difference  in  treatment  was, 
therefore,  discriminatory.  The  Supreme  Court,  how- 
ever, overruled  this  decision,  holding  in  effect  that  the 
import  rate  was  a  water-compelled  rate  throughout,  and 
that  the  commission  had  not  given  due  consideration 
to  the  competitive  factors  affecting  the  rate. 

71.  Problem  in  Canada. — On  the  export  trade  in 
Canada's  staples  there  comes  into  operation  the  com- 
petition of  markets.  What  Canada's  grain  can  pay  de- 
pends upon  the  conditions  in  the  world  market,  and  the 
rate  must  be  adjusted  with  reference  to  these  conditions. 
Further,  the  rail  portion  of  the  export  rate  is  concerned 
only  with  a  portion  of  the  total  haul,  while  in  the  case 
of  the  local  movement  it  has  no  movement  beyond.  It 
has  l)een  ruled  by  various  regulative  Ixxlies  that  a  divi- 
sion of  a  through  rate  is  not  a  neoessan,'  measure  of  the 
reasonableness  of  a  loeal  rate.  Similar  reasoning  is 
applied  to  export  rates. 

In  the  export  movement,  commodity  mtes  are  quoted 
on  many  staple  articles.  For  example,  there  are  export 
commodity  rates  to  St.  John  on  cattle,  riieep  and  hogs, 
<>rain  (all-rail),  grain  (lake  and  rail),  apples,  pears, 
hird,  cured  meats.  Frcwn  Montreal  there  are  export 
commodity  rates  on  the  same  articles  and,  ui  addition, 
on  pine  and  larch  lumber. 

The  board  has  recognized  that  there  is,  within  reason. 


444 


TK.\FFI(' 


a  justihcatioii  for  a  lower  Imsis  on  eximrt  than  on  do. 
i"c.st.c  bus,ne.H.     It  <lirecte<l  in  11)10  tin..  «.instatement 
"l  Montreal  of  export  rates  on  hmik-r,  lower  than  the 
|loniest.c  rates.    Hy  an  order  of  1011  it  directed  an  ex 
tension  of  the  territory  from  whieh  these  reduced  exjwt 
rates  on  h.n.her  shouhl  apply.    U'hile  the  export  rates 
v.a  Montreal  Imve  varied,  they  have  generally  been  held 
down  by    he  New  York  rates  as  a  maximum.    It  wa, 
recognized  .n  1005  that  the  existing  practice  of  com. 
putmg  export  rates  from  Ontario  points  on  the  basis 
of  l^rcentages  of  the  existing  export  rates  from  Chicago 
to  Xew  ^  ork  was  not  unreasonable,  and  a  direction  h^s 
Kiven  as  to  the  groupings  and  percentages  that  should 
apply  m  the  case  of  all  export  traffic. 

72.  Import  rate  anomaUe».-WUh  import  traffic  on 

a  low  import  rate  basis  does  not  elicit  disapproval  at  a 

ermmal  point,  say.  Vancouver,  anomalies  in  connection 

M  .th  ,t  are  complained  of  at  interior  iwjints.    That  is  to 

'crllll  T'"^'^""!  "*  ^'"^«''>'  ^"^«  *''«*  «^^  rate  from 
C.rea    Britain  is  lower  than  the  rate  from  Montreal,  he 

considers  that  he  is  being  discriminated  against,     iut 

ma  particular  case  the  railway  rejoined  that  the  ocean 

.ate  on  bar  iron  from  Europe  to  Vancouver  is  85  cents 

per  100  pounds.    The  rail  rate  on  this  commodity  from 

ofT>ri?  '^^'^-  "  ''  ^^"*'^-  ^'"^'"^  «  combLtion 
ot  J?l.iO.    At  the  same  time  the  lake  and  rail  rate  (all- 

IS J?L81.  If,  then,  the  railway  met  the  rate  combination 
on  Vancouver  where  water  competition  existed  an 
anomaly  would  be  abated. 

nofnri'V^T'"^  ""xV  "^''*  ''"  '^'  '^'^  «f  «»  interior 

n  basket  crates,  obtains  a  low  ocean  rate  because  since 

.t  packs  solidly,  it  is  really  paying  ballast.     If  th; "ai" 


rilASKS    OF    UATK8    AM)    TARIFFS 


445 


H.iy  makes  a  comi)elle(l  rate  to  Vancouver  on  this  com- 
modity then  the  rate  to  Kaniloops  will  be  the  rate  to 
tlic  Pacific  terminal,  plus  the  local  rate  back  to  Kam- 
|.K)|)s.  To  Kamloops,  there  bcinj?  no  water  competition 
at  that  point,  the  rate  would  roughly  be  proportionate  to 
distance.  But  if  the  rate  to  the  coast,  plus  the  local 
hack,  is  less  than  the  straight  rate  to  Kamloops,  the  com- 
l»i nation  on  Vancouver  will  naturally  act  as  a  maximum 
lioldifig  down  the  Kamloops  rate.  With  greater  effi- 
tieiity  of  water  competition  at  Vancouver,  the  effect  of 
the  compelled  rate  at  the  terminal  will  affect  the  rate 
situation  still  further  east  of  Vancouver. 

On  a  shipment  of  tea  from  Montreal  to  Vancouver 
complaint  was  made  that,  while  in  carloads  the  all-rail 
rate  was  $1.40  and  lake  and  rail  $1.88,  there  was  a 
tiirough  import  rate  of  98  cents  from  British  ports  to 
\'aiicouver. 

73.  Attitude  of  rmlways. — The  position  taken  by  the 
t'aiiadian  Pacific,  in  explanation  of  this,  was  that  the 
rate  all-water  from  London  to  Vancouver  by  the  China- 
Mutual— the  Blue  Funnel  Line — was  73  cents,  while 
hy  way  of  the  Tehuantepec  Railway  it  was  76  cents. 
Therefore,  in  quoting  an  import  rate  of  98  cents  the 
railway  contended  that  taking  into  full  consideration 
such  advantages  as  it  had  over  the  all-water  route  in 
point  of  despatch,  it  could  not  charge  more  than  it  did 
and  get  any  share  of  the  import  business. 

A  merchant  in  London,  Ontario,  may  complain  that 
the  rail  rate  he  pays  on  goods  from  Montreal  is  higher 
than  the  rail  rate  for  the  same  distance  when  the  goods 
move  on  an  import  rate.  He  is  of  opinion  that  since  the 
jroods  move  over  the  same  portion  of  railway  in  the 
same  quantities  and  under  the  same  operating  condi- 
l  ions,  anv  difference  in  treatment  is  discriminator^'.    Tlie 


MrCROCOPY  RESOLUTION  TKT  CHART 

(ANSI  and  ISO  TEST  CHART  No.  2) 


1.0 


I.I 


1.25 


Hi  ^si  12.2 


140 


2.0 


11^ 


L8 
1.6 


^  >IPPLIEG  ..vMGE    Inc 

SS-^  1653  East   Main   Streel 

eg  Rochester.    New   York         14609        USA 

J^S  (^'6)   482  -  0300  -  Phone 

^S  ("6)   '98  -  5989  -  Fox 


446 


TRAFFIC 


railways  rejoin  that  the  import  rate  is  dependent  upon 
the  conditions  of  traffic  by  .vay  of  the  various  North 
American  ports     The  rates  through,  say,  New  York, 
are  affected  by  the  amount  of  tonnage  offering  in  Eu- 
rope  for  New  York  and  the  greater  density  of  traffic 
m  the  eastern  states.    New  York,  it  is  urg;d,  is  more 
favorably  situated  from  the  standpoint  of  attracting 
ocean  tonnage  than  is  3Iontreal.    The  rate  fixed  by  way 
of  ^  ew  1  ork  will  then,  it  is  contended,  fix  the  maximum 
which  the  shipment  by  way  of  Montreal  cannot  exceed 
On  shipments  to  Ontario  points,  the  access  afforded  bv 
Lnited  States  lines  spreads  into  Canada  the  effect  of 
the  TJnited  States  import  rate. 

Through  the  import  rate  being  thus  fixed,  the  railways 
will  further  contend  that  if  on  account  of  the  less'er 
amount  of  ocean  tonnage  moving  to  JMontreal  the  ocean 
i^te  to  that  point  is  higher  than  to  New  York,  then 
the  Canadian  railway  participating  in  the  import  traffic 
must  either  shrink  its  proportion  of  the  inland  rate  or 
forego  the  bushiess  entirely.  In  other  words,  it  is  con- 
tended that  it  IS  not  through  any  desire  to  discriminate 
against  the  Canadian  domestic  movement  that  the  lower 
import  rate  basis  is  given,  but  because  it  will  not  stand 
any  higher  rate. 

74.  Transit  arrangements,  stop-off,  etc.-In  the  tariffs 
are  to  be  found  arrangements  .vhich  permit  the  raw  ma- 
terial to  be  Morked  up  in  whole  or  in  part  before  the  rail- 
.lourney  is  completed.  The  board  has  recognized  in  the 
case  of  sugar  beets  and  of  pulp  wood,  for  example,  that 
the  railway  may  take  into  consideration,  in  fixing  the 
rate  basis  inwards  on  crude  material,  that  it  carries  out 
the  finished  outcome  of  this  raw  material.  It  may 
therefore,  adjust  its  rates  on  the  basis  of  a  continuous 
service  instead  of  the  basis  of  two  distinct  sen-ices 


PHASES    OF    RATES    AND    TARIFFS 


447 


The  milling-in-transit  privilege  is  probably  the  best 
known  of  these  manufacturing  in  transit  arrangements. 
With  the  expansion  of  the  railway  system  of  the  United 
States  in  the  earl  '  seventies,  there  came  readjustments 
in  flour  milling.  For  example,  a  new  milling  industry 
bcifan  to  develop  in  Wisconsin  and  in  Minnesota.  Hith- 
erto, the  important  flour  mills  had  been  located  in  the*  east 
and  in  the  middle  west.  With  changes  in  agricultural 
conditions,  the  established  mills  had  to  look  further  west 
for  wheat.  The  new  western  mills  were  in  a  position  to 
obtain  their  grain  locally,  in  the  first  instance,  by  wagon 
haul.  The  railways  competing  for  their  business  gave 
low  rates  eastbound  on  the  milled  product.  The  rates 
were  further  held  down  by  the  proximity  of  these  mills 
to  the  lakes. 

At  the  same  time  the  established  mills  further  east 
were  apparently  faced  by  a  cost  which,  as  compared  with 
the  costs  of  the  western  mills,  would  be  prohibitive.  For 
it  appeared  as  if  the  eastern  mills  would  have  to  stand 
the  rate  of  the  relatively  long  haul  on  their  wheat  in  and 
the  rate  on  the  flour  out.  To  meet  this  condition,  the 
railways  developed  the  milling-in-transit  arrangement 
whereby  the  shipment  of  the  wheat  in  and  of  the  product 
out  were  treated  as  a  continuous  movement  on  one  rate 
instead  of  two  local  movements  on  two  local  rates. 

This  transit  arrangement,  which  is  mutually  advan- 
tageous, since  it  enables  the  miller  to  draw  upon  wider 
aieas  for  his  supplies  and  insures  the  railway  the  out- 
ward movement,  is  now  widespread.  It  is  taken  advan- 
tage of  in  western  Canada.  It  is  taken  advantage  of 
extensively  in  eastern  Canada.  In  the  case  of  grain, 
flaxseed,  and  grain  products  originating  in  the  North- 
west and  destined  to  Fort  William,  Port  Arthur  and 
Westfort    grain  shipped  to  millers  on  the  direct  line 


448 


TRAFFIC 


of   transit   will    be   charged    the    current   local   grain 
rate  in. 

To  take  advantage  of  the  transit  arrangement,  the 
milled  product  has  to  be  shipped  out  in  six  months.  If 
so  shipped,  it  goes  out  on  the  balance  of  the  through 
grain  mileage  rate  from  tlie  point  of  origin  to  final  des- 
tination, plus  one  cent  per  100  pounds  for  terminal  ser\'. 
ices  at  the  milling  point. 

A  similar  arrangement  is  made  when  the  grain  is 
shipped  to  elevators  for  clearing  or  storage.  In  the  ad- 
justment of  the  rate  there  is  refunded  to  the  shipper  the 
difference  between  the  local  rate  in  and  the  through  pro- 
portional rate  for  the  inbound  haul. 

It  is  not  permissible  to  reship  one  kind  of  grain  or  its 
product  outwards  against  an  inward  billing  for  another 
kmd  of  grain.  That  is  to  say,  wheat  or  its  product 
may  not  be  reshipped  against  inward  billing  for  oats,  or 
vice  versa. 

Under  grain  products  are  included  barley,  cleanings, 
breakfast  foods  or  cereals  (uncooked) ,  bran,  buckwheat, 
buckwheat  flour,  chopped  feed,  cornflour,  commeal,  flour 
(made  from  grain  only),  grits,  groats,  linseed  meal, 
malt,  middlmgs,  millfeed,  oathulls,  oatmeal,  oilcake,  oil- 
meal,  peas  (whole  or  split) ,  rolled  oats,  rolled  wheat,  rj'e 
flour  and  meal,  sw^eepings  and  screenings,  shorts,  wheat- 
meal.  JNIalting  is  covered  by  the  transit  arrangement  on 
the  same  general  conditions  subject  to  the  further  condi- 
tion that  the  balance  of  the  through  rate  will  apply  on 
the  product  outward  only  to  the  amount  of  80  per  cent 
of  the  weight  of  the  barley  covered  by  the  inwards 
billing. 

A  stop-over  is  allowed  on  rough  lumlier  for  dressing, 
re-sawing  or  sorting  and  reshipment.  Here,  while  a 
similar  rate  arraiigement  is  permitted,  the  stop-over  is 


PHASES   OF    RATES    AND    TARIFFS 


449 


limited  to  thirty  days.    When  re-sawing  or  dressing  is 

erformed,  the  outwards  weight  must  not  exceed  the  fol- 
lowing percentages  of  the  weights  shipped  into  stop-oflF 
point:  95  per  cent  when  re-sawn  on  the  rough;  90  per 
cent  when  dressed  only;  85  per  cent  when  re-sawn  and 
dressed. 

In  the  tariffs  will  be  found  various  recognitions  of  the 
principle  of  treating  the  consignment  as  a  through  move- 
ment, although  it  is  stopped  in  transit  for  one  purpose 
or  another,  there  being  some  charge  for  such  stop.  The 
more  important  examples  may  be  mentioned.  Apples 
may  be  shipped  to  storage  and  inspection  points  for  sub- 
sequent reshipment.  Beans  may  be  held  for  cleaning  and 
reshipmciit.  Coal  and  coke  may  be  reshipped  in  the  same 
car  if  there  is  no  breaking  of  bulk.  Provision  may  be 
made  for  completion  of  carloads  of  hogs,  or  for  feeding 
in  transit. 

75.  Changing  destination  in  transit. — ^While  the  con- 
tract for  carriage  is  in  reality  concerned  with  the  move- 
ment between  the  points  set  out  in  the  bill  of  lading,  the 
railways  arrange  for  changing  destination.  This  is  of 
advantage  because  when  the  commodity  goes  forward  it 
may  not  be  known  what  is  the  best  market  for  it;  or  when 
it  is  in  transit,  information  as  to  a  better  market  than 
that  to  which  it  was  originally  consigned  may  be  ob- 
tained. On  payment  of  $3.00  per  car  for  each  change  of 
destination  in  transit,  the  railway  will  on  request  attempt 
to  change  the  destination.  In  addition,  the  difference 
between  the  rate  as  paid  and  the  rate  to  ultimate  destina- 
tion has  to  be  paid. 

In  the  event  of  a  car  being  hauled  out  of  the  direct  line 

from  shipping  point  to  ultimate  destination,  a  charge  of 

one  cent  per  ton  per  mile,  with  a  minimum  of  twenty 

miles,  will  be  made  for  such  extra  haul.    But  in  no  case 

c-m-29 


450 


TRAFFIC 


must  the  total  charges  exceed  the  local  rate  to  and  from 
the  point  at  which  the  change  of  destination  is  made, 
plus  the  charge  for  change  of  destination.  The  extra 
services  and  responsibilities  this  change  in  transit  places 
on  the  railway  are:  there  must  be  a  telegram  to  the 
agent  at  the  point  where  the  change  is  to  be  made; 
the  agent  at  that  point  must  be  on  the  lookout  for 
the  car,  and  this  may  require  his  going  to  the  van  of 
each  freight  train  that  passes  in  order  to  examine  the 
conductor's  record ;  when  the  car  is  found  it  must  be  re- 
billed  and  the  waybill  must  be  checked ;  the  amount  of 
charges  must  be  verified  and  the  Auditor  of  the  Depart- 
ment informed ;  the  car  must  be  cut  out  of  the  train  and 
put  to  one  side,  thus  necessitating  switching,  etc. ;  the  car 
must  be  picked  out  and  put  on  the  new  train ;  the  railway 
company  must  assume  the  legal  responsibility  of  decid- 
ing whether  the  party  who  asked  that  the  destination  of 
the  car  be  changed  owns  the  merchandise  and  has  the 
right  to  deal  with  it. 

76.  Concentration  rates. — A  concentration  or  assem- 
bling arrangement  is  of  advantage  to  shippers.  A  part 
carload  of  horses,  cattle,  hogs  or  sheep  charged  at  car- 
load rate  and  weight  from  original  point  of  shipment  to 
final  destination  may  be  stopped,  on  the  direct  run,  in 
transit,  for  completion  of  load  for  an  additional  charge 
of  $3.00  per  car  for  each  stop.  In  the  case  of  poultry,  the 
charge  is  $5.00.  In  both  of  these  cases,  if  there  is  an  out- 
of-line  haul,  there  is,  in  addition  to  the  stop-off  charge 
already  mentioned,  a  charge  of  one  cent  per  ton  per 
mile,  with  a  minimum  of  $8.00. 

Butter,  cheese,  and  eggs  when  shipped  to  cold  stor- 
age points,  in  less  than  carload  quantities  (in  the 
case  of  cheese  500  pounds  or  over)  for  cold  storage, 
branding  or  inspection  and  reshipmenf,  have  a  special 


PHASES    OF    RATES    AND    lARIFFS  451 

rate  basis  in.  Such  commodities  where  exported  are 
given  the  advantage  of  the  export  rate  from  original 
shipping  point  to  the  port  of  export,  plus  2  cents  per 
100  pounds  for  stop-over.  In  the  case  of  cheese,  this 
arrangement  applies  only  if  it  is  shipped  into  and  out  of 
tlie  cold  storage  point  in  carloads. 

77.  Special  rate  reductions.— At  times,  the  railways 
carry  pedigreed  stock  at  half  rates.  This  is  regarded  by 
the  railways  as  a  matter  of  concession,  not  of  right.  The 
smaller  roads  when  asked  for  such  an  arrangement,  reply 
that  their  traffic  will  not  warrant  the  reduction. 

Seed  grain  is  carried  at  reduced  rates.  This  conces- 
sion is  not,  however,  a  continuous  one.  It  is  published 
from  season  to  season,  as  crop  conditions  seem  to  de- 
mand it. 

With  a  view  to  facilitating  settlement,  the  railways  in 
the  Xorthwest  carry  settlers'  effects,  in  carloads,  at  one- 
half  the  ordinary  sixth-class  tariff  rate  which  would  ap- 
ply under  the  classification.  The  Canadian  Pacific  re- 
stricts this  concession  to  settlement  on  its  own  lines.  The 
Canadian  Northern  does  not  so  limit  the  concession. 

78.  Cartage  service. — Beginning  about  1855,  the  Ca- 
nadian railways  performed  cartage  service.  Down  to 
1892,  there  was  no  charge  by  the  railways  for  the  serv- 
ice. In  1893,  because  of  the  increase  of  the  cost  of  cart- 
age, the  railways  added  to  their  rates  in  the  case  of  the 
first  four  classes  of  the  classification  H  cents  per  hun- 
dred pounds,  and  to  the  fifth  class  1  cent.  In  1903, 
the  charges  were  equalized  by  making  the  additional 
amount  so  collected  li  cents  per  hundred  pounds  for 
the  five  classes.  In  1908,  *  cent  per  hundred  pounds 
was  added.  This  made  the  charge  to  the  pubhc  2  cents 
per  hundred  pounds,  with  a  minimum  of  15  cents  on 
smalls. 


452 


TRAFFIC 


At  the  same  time,  the  railways  were  paying  the  cart- 
age companies  performing  the  service  in  Montreal,  for 
example,  2^  cents  per  one  hundred  pounds.  In  1912, 
application  was  made  to  the  board  to  permit  the  charge 
to  the  public  as  set  out  in  the  tariffs  to  be  raised  to  8  cents 
per  100  pounds,  with  a  minimum  of  20  cents  on  smalls. 
Evidence  was  submitted  by  the  cartage  companies  as  to 
the  great  increases  in  their  cost  of  operation.  Permission 
was  given  to  the  railways  to  collect  2i  cents  per  hundred 
pounds  from  the  public,  the  smalls  charge  remaining  un- 
changed. 

The  cartage  service  has  been  performed  in  eastern 
Canada  by  the  Dominion  Transport  Company  and  the 
Shedden  Company,  the  railways  having  made  contracts 
with  these  companies.  It  was,  of  course,  open  to  the 
individual  shipper  to  perform  the  cartage  service  to  and 
from  the  railway  sheds.  In  practice,  however,  it  was 
found  that  in  the  bulk  of  the  business,  it  was  more  expe- 
ditious, as  well  as  more  economical,  to  have  it  performed 
by  the  cartage  companies.  The  cartage  companies  have 
made  and  accepted  deliveries  of  outbound  and  inbound 
package  freight  at  different  shed  doors,  thus  aiding  the 
railway  in  the  matter  of  distribution  of  freight  within 
the  sheds,  and  consequent  increase  of  expedition  in  han- 
dling. Bills  of  lading  are  signed  by  the  teamsters  of  the 
cartage  companies. 

The  railways  still  contend  that  the  increased  cartage 
charge  which  was  allowed  in  1912  does  not  sufficiently 
reimburse  them  for  the  payments  they  have  to  make  to 
the  cartage  companies.  Upon  the  reissuance  of  the  class 
tariffs  to  western  points  brought  about  bv  the  board's 
decision  in  the  Regina  Rate  Case,  the  rates  in  western 
Canada  were  published  exclusive  of  cartage,  i.  e.,  ship- 
pers and  consignees  were  obliged  to  furnish  their  own 


PHASES    OF    RATES    AND    TARIFFS  453 

cartage.    At  the  same  time,  an  arrangement  was  made 
l)y  the  railways  whereby,  in  respect  of  the  service  per- 
formed by  designated  cartage  companies,  they  undertook 
to  bill  for\vard  for  collection  from  the  consignee  the 
cost  of  cartage  on  outbound  business.    The  railways  in 
adopting  the  discriminatory  practice  of  limiting  this  con- 
cession to  designated  transfer  companies  at  the  various 
points,  stated  that  it  would  be  impossible  to  let  all  the  iso- 
lated movements  by  private  conveyance  participate  in 
it,  l)ecause  of  the  additional  bookkeeping  expense  it 
would  entail.    The  consignees  objected  to  the  railway 
billing  forward  the  cartage  charge.    They  said  if  it  is 
an  expense  properly  attachable  to  the  sale  of  the  goods 
let  it  be  covered  by  the  invoice.    While  it  was  a  con- 
venience, it  was  not  in  terms  of  the  Railway  Act  a  rail- 
way service.    A  consignee  objecting  to  the  payment  of  a 
charge  so  advanced  could  not  have  been  compelled  in  a 
court  of  law  to  pay  it.    This  arrangement  with  the  rail- 
ways was  terminated  at  the  end  of  1913.* 

Shippers  and  consignees  in  eastern  Canada  will  have 
to  make  their  own  arrangements  as  to  cartage,  the  rail- 
way no  longer  being  an  intermediary.'' 

In  the  case  of  cartage  in  the  United  States,  as,  for 
example,  in  Cleveland,  the  bulk  of  the  work  is  done  by 
regular  organized  cartage  companies,  under  contracts 
with  shippers  and  consignees  who  give  carriers  written 
instructions  or  orders  to  deliver  all  freight  consigned  to 
them  to  a  specified  cartage  company.  The  cartage 
charges  are  on  a  higher  basis  than  has  been  in  force  in 
Canada. 

'  Since  the  above  was  written  the  railways  have  agreed  to  continue  tfie  prac- 
tice of  advancing  cartage  charges,  it  being  understood  that  this  confers  no  legal 
ol'lieation.  under  the  Railway  Act,  on  the  part  of  the  consignees  to  pay  the  charges 
so  advanced. 

2  Since  the  above  was  written  the  railways  have  agreed  to  continue  the  practice 
of  making  cartage  contracts  with  cartage  companies  provided  all  the  expense  <rf 
tlif  cartage  is  borne  by  the  shippers  or  consignees. 


CHAPTER  VI 

PASSENGER    RATES 

79.  Water  and  port  competition  in  passenger  traf- 
fic.—Passenger  rates  are  not  affected  by  competition  of 
markets  and  only  to  a  slight  extent  by  competition  of 
ports.  While  the  development  of  facilities  for  foreign 
travel  by  way  of  a  particular  port  may  attract  passen- 
ger traffic  by  rail  from  one  route  to  another,  this  de- 
pends  upon  the  preference  of  the  passenger,  not  on  mere 
cheapness  of  route.  While  to  the  ton  of  freight  the 
cheapness  of  the  rate  is  the  thing,  in  the  case  of  the 
passenger  there  enter  in  conditions  of  personal  com- 
fort, scenic  attractions  of  the  route,  and  the  like,  which 
may  more  than  outweigh  a  lower  rate  afforded  by  a 
shorter  mileage  to  a  particular  port. 

Water  competition  and  its  concomitants  which,  in  cer- 
tain phases,  connect  themselves  with  competition  of 
ports,  are  also  much  less  important  here.  The  competi- 
tion of  the  Great  Lakes  attracts  tourist  traffic.  But  the 
business  man  who  has  to  meet  some  business  engagement 
seeks  the  more  expeditious  rail  route.  Low-grade  bulky 
freight  is  attracted  by  water  because  the  rate  is  more 
important  than  the  time  of  transit.  Within  limits,  the 
time  of  transit  is  more  important  to  the  business  man 
than  is  the  rate. 

In  freight  business,  ocean  competition  coimects  itself 
with  port  competition  when  a  particular  port  may,  by 
attracting  a  larger  volume  of  tramp  tonnage,  afford  a 

454 


PASSENGER   RATES 


455 


cheap,  slow,  and  perhaps  roundabout  route  for  freight. 
Hut  liere,  again,  on  the  ocean  movement,  time  and  direct- 
ness of  route  are  more  important  to  the  passenger. 

80.  Distance  important  /actor.— Distance  affects  pas- 
senger rates  much  more  directly  than  it  does  freight  busi- 
ness.   Reference  has  been  made  to  the  extent  to  which 
circuitous  routes  may  enter  into  the  transportation  of 
freight.    But  in  the  movement  of  passenger  business  be- 
tween New  York  and  New  Orleans  where  the  most 
roundabout  route  is  58  per  cent  longer  than  the  most 
direct,  normally  passenger  travel  between  these  two 
points  will  seek,  if  not  the  shortest,  at  least  the  shorter 
routes.    For  if  the  longest  route  is  taken,  there  will  be 
such  an  addition  of  the  time  to  the  journey  that  unless 
the  rate  is  very  much  reduced  the  additional  expenses 
of  travel,  meals,  sleeper  accommodation,  etc.,  will  more 
than  take  up  the  rate  advantage,  if  any.    Again,  in  the 
movement  from  the  eastern  states  to  San  Francisco 
by  a  broken  raU  and  water  route  by  way  of  Vancouver 
as  compared  with  a  direct  all-rail  route,  while  the  former 
may,  on  account  of  the  magnificent  scenery  of  the  Cana- 
dian Rockies,  attract  the  tourist,  it  is  the  latter  which 
attracts  the  business  man. 

81.  Time  eZement.— Throughout  passenger  travel,  the 
time  element  is  much  more  important  than  the  rate  ele- 
ment. But  this  must  be  modified  by  the  fact  that  if  the 
time  taken  in  transit  is  not  too  great,  a  slower  and  m  'e 
circuitous  route  may  within  rather  narrow  limits  compete 
with  a  more  direct  route. 

This  is  recognized  in  the  transportation  field  between 
Chicago  and  New  York.  The  high-speed  trains  are 
excess  fare  trains.  Between  Detroit  and  Buffalo,  the 
I^Iichigan  Central  has  its  high-speed  excess  fare  train, 
the  "Detroiter."     The  Grand  Trunk,  because  of  its 


456 


TRAFFIC 


longer  line  between  Chicago  and  New  York,  has  a 
differential  rate  of  $10  first-class,  as  compared  with  the 
$18  rate  of  the  Michigan  Central  and  other  standard 
lines.  The  excess  fare  trains  are  nin  on  the  principle 
of  a  premium  for  higher  speeil.  the  premium  being  re- 
paid  if  the  time  is  not  made. 

It  is  within  the  bounds  of  reason  to  say  that  normally 
the  excess  fare  is  not  sufficiently  high.    The  excess  fare 
tram,  on  account  of  the  limited  number  of  cars  it  can 
haul  and  the  superior  luxurj'  it  affords  its  passengers, 
IS  more  costly  than  the  lower  speed  train.    Possibly  a 
radway  may  feel  that  it  can  in  a  way  regard  this  dif- 
ference  as  being  properly  chargeable  to  the  advertising 
which  such  a  service  gives  the  railway.    But  the  addi- 
^onal  costs  are  not  limited  to  the  train  movement  alone. 
The  high  speed  means  greater  expenditures  on  track 
and  equipment  than  would  be  necessary  with  more  mod- 
erate speed.     To  the  extent  that  it  does  not  meet  its 
proper  share  of  this  expense  the  other,  slower  methods 
of  travel  must  pay  more  than  their  proper  share.    The 
superior  facility  of  the  excess  fare  train  should  be  com- 
pensated for  by  an  excess  fare  commensurate  with  the 
increased  cost,  not  merely  by  a  nominal  penalty. 

82.  Expensive  statiom.— In  the  development  of  pas- 
senger business,  more  expensive  passenger  stations  are 
called  for  in  the  larger  cities.  The  expense  of  these  may 
be  measured  in  millions  of  dollars.  But  when  measured 
m  terms  of  passenger  traffic,  the  terminal  expense  per 
unit  IS  relatively  small.  The  expense  of  the  passenger 
terminal  may  be  considered  as  roughly  proportional  to 
the  business  in  and  out  of  the  point  it  serves.  It  is  not 
necessarily  increased  in  expense  by  the  matter  of  a 
through  movemcMt.  In  freight  business,  the  constantly 
expanding  terminals,  while  in  part  attributable  to  local 


PASSENGER    RATES 


457 


conditions,  are  also  attributable  to  general  increase  in 
tin:  business  of  the  country. 

The  congestion  of  freight  facilities,  which  Montreal 
at  times  faces,  is  not  due  simply  to  the  business  local  to 
Montreal;  the  export  business  is  also  an  important  fac- 
tor. Passenger  business,  for  example,  at  Winnipeg, 
while  affected  by  the  movement  of  settlers  through,  is 
roughly  proportioned  to  the  business  local  to  Winnipeg. 
In  older  sections  which  have  been  longer  settled,  this 
holds  in  greater  degree.  But  when  the  Canadian  Pa- 
cific acquired  land  at  $1,000  per  acre  at  Transcona  for 
terminal  purposes,  this  was  due  to  the  general  expan- 
sion of  the  freight  business  of  the  Northwest.  Since 
1904,  the  Canadian  Pacific  has  rebuilt  and  remodeled 
everyone  of  its  freight  terminals  from  Fort  William  to 
\'ancouver.  The  freight  business  requires  a  large 
amount  of  service  in  terminals,  all  of  which  takes  time, 
space,  and  expense.  The  passenger  loads  and  unloads 
himself.  In  purchasing  his  ticket,  he  classifies  himself 
in  point  of  service. 

While  the  terminal  expenses  tend  to  become  of  in- 
creasing importance  in  freight  business,  in  passenger 
business  it  is  the  costs  of  haulage,  the  line  costs,  which 
are  more  important. 

83.  Other  factors. — ^While  the  ton-mile  rate,  because 
of  conditions  already  referred  to,  tends  to  decrease  as 
the  distance  increases,  the  passenger  costs  are  much 
more  constant.  Consequently,  the  distance  factor  is 
much  more  important  in  passenger  business.  Again, 
disturbing  conditions  of  competition  such  as  are  present 
in  freight  business  are  much  less  in  evidence  here. 

The  passenger  fare  for  a  journey  is  a  multiple  of  rate 
and  distance.  That  is  to  say,  the  principle  of  equal 
mileage  rates  without  a  tapering  of  the  rate  as  the  dis- 


458 


TRAFFIC 


tance  increases  may  be  more  readily  applied  here.  The 
actual  rate  applied  may  be  modified  by  return  trip  rates, 
commutation  rates,  excursion  trip  rates,  etc.  So  it  does 
not  happen  that  the  rate  charged  is  an  exact  multiple 
of  the  s*"ndard  rate.  It  is  computed  that  in  Canada 
not  more  than  20  per  cent  of  the  passenger  travel  is 
carried  on  one  way  first-class  tickets  based  on  the  stand- 
ard rate  per  mile. 

On  long  haul  business,  modifications  of  the  distance 
basis  and  entrance  of  the  grouping  principle  in  a  modi- 
fied form  may  be  found.  From  Montreal  to  Vancouver, 
the  first-class  limited  fare  of  the  Canadian  Pacific  is 
$72.50,  while  from  Ottawa,  a  distance  shorter  by  115 
miles,  the  rate  is  only  $1  less.  On  round-trip  tourist 
tickets  grouping  or  blanketing  may  be  found  to  a 
greater  extent.  Thus  the  nine  months'  round  trip  tour- 
ist rate  from  Ottawa  to  Vancouver  is  $132.10.  This 
rate  applies  from  Finch,  Winchester,  Prescott,  and 
Kingston. 

In  the  freight  business,  the  movement  is  a  one-way 
one.  That  is  to  say,  the  transportation  is  concerned  only 
with  the  movement  of  the  conraiodity  to  the  market.  The 
cars  must  be  taken  back  either  empty  or  filled  with  some 
other  commodity.  But  the  passenger  business  is  better 
balanced.  A  man  goes  from  his  home  town  to  a  near-by 
town  on  business;  in  a  short  time  he  retrrns.  In  the 
absence  of  alternative  routes,  the  passenger  business 
which  goes  returns.  Of  course  this  is  subject  to  the  ex- 
ception which  arises  in  the  case  of  incoming  settlers  in 
the  Northwest.  But  this  is  only  a  momentary  disturb- 
ance of  the  balance.  Once  their  ecoiiomic  condition  im- 
proves, they  also  begin  journeys  away  from  home  witli 
their  consequent  return.  While  there  cannot,  in  the  na- 
ture of  things,  be  a  perfect  balance  of  mileage  at  a  given 


PASSENGER    RATES 


459 


time,  there  is  proportionately  less  empty  mileage  due  to 
a  lack  of  return  business. 

While  freight  business  may  to  a  considerable  extent 
be  stimulated  by  reduced  rates,  this  does  not  hold  true 
to  the  same  extent  in  passenger  business.    The  energetic 
advertising  of  the  passenger  department  does,  indeed, 
stimulate  a  demand  for  tourist,  transcontinental,  colo- 
nization, round-the-world  traveling.    But  the  extent  to 
which  this  can  be  developed  depends  upon  the  income  of 
the  individual.    There  are  not  only  the  incidental  ex- 
penses of  train  travel,  but  the  hotel  and  other  expenses 
along  the  way  are  also  large.    The  extent  to  which,  then, 
there  is  a  response  to  such  methods  of  stimulating  travel 
depends  on  the  opinion  of  the  mdividual  as  to  some  busi- 
ness gain  to  be  obtained,  or  upon  his  surplus  income. 
Concessions  in  rate  are  apt  to  have  the  most  noticeable 
effects  in  connection  with  commutation  business  on  a 
relatively  short  haul  movement.    The  commutation  rate 
permits  the  business  man  to  live  some  distance  out  of 
the  city.   His  family  thus  becomes  dependent  upon  train 
travel.     The  excursion  rate  stimulates  holiday  travel. 
But,  here  again  the  matter  of  surplus  income  is  a  deter- 
mining factor. 

84.  Passenger  business  in  practice. — Comparison  be- 
tween freight  and  passenger  business  is  natural  because 
they  are  the  two  main  sources  of  railway  income.  While 
they  are  not,  because  of  inherent  differences,  exactly 
comparable,  they  are  of  interest  when  considered  jointly, 
because  they  are  complementary.  A  freight  traffic  man 
may  look  askance  at  the  advertising  expenses  of  the 
passenger  department.  The  passenger  man  will  re- 
spond that  while  it  may  be  difficult  to  point  out  the  ex- 
act return  from  such  advertising,  it  not  only  creates 
passenger  traffic  but  also  aids  in  attracting  freight  busi- 


460 


TRAFFIC 


ness.    It  may  be  too  broad  a  generalization,  althoujrh  it 
.s  sometimes  so  stated,  that  the  line  a  man  travels  ove 
IS  the  Ime  he  wU  route  his  freight  over.    Whether  or 

fl^lh!  f  t.""  '"  P™-^*'™  depends  on  the  matter  of 
freight  faeihties.  But  if  a  man  is  favorably  impressed 
by  the  passenger  service  he  receives,  it  has  some  effect 
on  his  shippmg  mstructions.    Mr.  W.  P.  Hinton,  Gen- 

17!^T"J"  ^/'"*  "'  *'  ^"""^  Trunk  Pacific,  who 
has  had  a  diversified  experience  both  in  freight  and  pas" 
senger  business,  put  the  matter,  from  the  passenger 
man  s  standpoint,  very  aptly  when  he  said:  * 

.rf°„*'  !'''«f™r^'^'  of  Ca„«l.,  transportation  companie, 
are  permitted  to  give  speeia.  fares  and  concessions  to  land 
settlers,  agricultural  exhibition  managers,  exhibition  and  c™ 
mercial  travellers.  The  ultimate  results  are  reaped  b/I 
freight  department,  owing  to  the  settlement  of  the  land  thi 
improvement  of  crops,  and  the  additional  sale  and  distribit  on 
of  merchandise  and  supplies,  '"ounon 

85.  Pa»eenger  and  freight  receipt,  compared.-^t. 
e«nce  to  certain  phases  of  the  fmght  business  whS. 

hZ^'t^  '""  """'^  ^'"'"  '"'^  ""''>  ^"^  ""portent 
freight  busmess  is  m  terms  of  railway  receipts  than  pas- 

sparsely  settled  sections  a  preponderance  of  freight  busi- 
ness IS  always  found.  While  in  England  every  $1(W  of 
revenue  s  divided  between  passengfr  and TJghtTusi 

If  :  K  /  *^^  ^""*'*  '^*»*«''  »  somewhat  similar 
ratio  IS  to  be  found,  although  in  the  more  densely  Zm 
eastern  states  the  ratio  is  $44  to  $56.  Pro^LveT 
crease  in  density  of  population  may,  other  t^ZZ 
equ^  be  expected  to  affect  pas  Jger  businesf  ^ 
\\  hile  the  receipts,  and  work  done  therefor,  in  freight ' 
busmess  may  be  expressed  in  ton-mile  eamm^,  thT^: 


PASSENGER    RATES 


461 


senger  mile,  which  is  also  a  work  distance  unit,  is  used 
to  measure  passenger  earnings.  While  the  ton  mile  is 
made  up  of  two  exact  quantities,  passenger  mileage  is 
made  up  of  one  inexact  and  one  exact  quantitative  in- 
dex. 

In  Canada,  in  the  period  1910-1912,  the  number  of 
passengers  carried  increased  by  14.6  per  cent,  while  the 
receipts  increased  by  23  per  cent. 

The  earnings  per  unit  in  passenger  and  in  freight 
business  in  Canada  for  a  period  of  years  are  of  interest: 

1907        1908        1909        1910        1911        1912 

Average  receipts  per  passen- 
ger per  mile 1 .911 

Average  receipts  per  ton  per 
mile 

In  this  period,  receipts  per  passenger  per  mile  in- 
creased 1.6  per  cent,  while  freight  receipts  per  ton  mile 
decreased  8.4  per  cent. 

86.  Density  of  traffic.— In  freight  business,  an  index 
of  increasing  business  is  freight  density,  that  is,  tons 
hauled  one  mile  per  mile  of  line.  In  passenger  business, 
a  similarly  constructed  index,  viz.,  the  number  of  pas- 
sengers carried  one  mile  per  mile  of  line  may  be  used. 
For  the  period  1907  to  1912  the  figures  for  Canada 
are  as  follows: 


Cents 

Cents 

Cents 

Cents 

Cents 

Cents 

1.911 

1.9iM) 

1.921 

1.866 

1.944 

1.943 

.815 

.7iS 

.787 

.739 

.777 

.757 

1907 


1908 


1909 


1910 


1911 


1912 


Passenger  density....      90,921       90,654       84,342 
Freight  density 518,486     564,378     545,991 


99,742 
635,321 


102,597 
631,829 


108,888 
731,776 


In  this  period,  the  mileage  on  which  the  above  av- 
erages are  struck  increased  by  18.6  per  cent;  the  pas- 
senger density  increased  by  19.7  per  cent,  while  the 
freight  density  increased  by  87.8  per  cent.  While  here 
again  the  bases  on  which  the  percentages  are  computed 
differ,  the  calculation  shows  in  a  general  way  that  pas- 


462 


TRAFFIC 


87   p2      /"""^  is  incrming  twice  as  r.pid^*^' 

«m.-In  passenger  business,  one  bad  year  by  it,  cur 
a,iment  of  ,„come  affects  business  in  succeeding  ye^ 

908  thT'f  'tf'^'  "'  ™"™y  "-«  c„nstnfcS^ 
1M8,  the  freight  business  of  1908  showed  a  sharp  ii! 
crease  over  1007.  It  is  true  that  it  took  untilmo  t 
get  back  to  the  normal  situation.  But  in  the  <!L  ot 
passenger  business,  the  curtaihnent  was  fe"t  mosTX 

pfn«1r?,Y        *."""'   disturbances    than    is    freight 

A  striking  difference  exists  between  freiirhf  «n,l  « 
Sanger  business,  both  in  respect  of  the  lo^^td  fte  £ 


m?        1908        1909        1910        19JJ 


Average  freight  haul  in  miles. .  183  206  iivr 

Average  tons  per  train 2«o  S^  ]»^ 

Average  passenger  haul  in  mile.,.  M  ^?  *I| 

Averagepassengers  in  train....  S6  S  J? 


211 

Sll 

69 

59 


«00 

305 

70 

60 


218 

325 

71 

62 


^J^r"'^^  ^™«''*  •""••  •»»  ''«^«'«ed  by  17  per  cent 

per  cent'  %T''  ""r*^-  """=  <-  -LX    « 
per  cent.    The  percentage  comparison  is  stiU  more  tn 

toCit^'rs^nt^rfl^^^^^ "-"  t 

cars,  the  conditions  are  differe~pa£n"rb'    °  "" 
For  1912.  the  freight  receipts  were  Z^l^:^Z 

^ri!;Te:tVort^^^l«^-^^^ 

Putting  the  matter  another  ^rf^XlsfntTn 


PASSENGER    RATES 


463 


engine  earned  $2.60  per  mile,  while  in  passenger  busi- 
ness it  earned  only  $1.60  per  mile. 

88.  Capacity  of  car*.— The  economies  of  heavier 
loading  are  not  available  in  the  passenger  business. 
Although  the  Great  Northern  was  at  one  time  credited 
with  attempting  to  introduce  into  its  passenger  business 
the  same  principle  it  used  in  its  freight  business,  viz., 
maximum  loading,  it  is  not  a  principle  which  will  work. 
It  is  true  that  in  India  and  Japan  there  are  about  five 
times  as  many  passengers  on  a  tr-^'  as  in  North  Amer- 
But  such  conditions  cann(  -  be  obtained  here. 


ica 


Where  time  is  unimportant  and  money  all  important, 
maximum  loading  may  be  obtained.     In  India,  the 
cheaper  class  passengers  will  begin  to  assemble  hours 
before  the  train  is  scheduled  to  start.    In  other  countries, 
passenger  trains  must  move  not  only  at  regular  times, 
but  also  with  an  eye  to  the  general  convenience  of  trav- 
elers.   A  new  train  may  be  put  on  to  develop  business. 
It  takes  not  far  from  six  months  to  prove  its  usefulness 
and  profit.    With  the  frequent  service  which  highly  de- 
veloped passenger  business  demands,  the  average  load- 
ing per  train  is  low.    The  standard  first-class  cars  of 
the  Canadian  Pacific  seat  from  70  to  86;  the  more  re- 
cently constructed  cars  accommodating  the  latter  num- 
ber.   The  62  passengers  accommodated  by  the  average 
train  could  be  handled  in  one  car,  with  space  to  spare. 
While  the  traveler  has  his  mind  concentrated  on  the  dis- 
comforts of  overcrowding  which  he  at  times  is  subjected 
to,  on  the  average  three-fourths  of  the  seating  capacity 
in  the  train  is  unoccupied. 

It  is  true,  however,  that  the  average  is  to  some  extent 
held  down  by  the  travel  in  sleeping  cars  and  in  parlor 
cars.  The  ordinary  maximum  carrying  capacity  of  a 
sleeping  car  is  twenty-seven.   While  sleeping-car  mQve- 


464 


TRAFFIC 


ment  and  parlor-car  movement  do  indeed  hold  down  the 
average,  the  effect  is  not  as  great  as  might  be  anticipated 
In  1909  only  2.91  per  cent  of  the  total  number  of  pas- 
sengers who  traveled  on  the  Canadian  Northern  were 
carried  in  sleepers.    For  the  same  year,  the  figures  for 
the  Grand  Trunk  were  3.25  per  cent  in  sleeping  cars 
and  1.15  per  cent  in  parlor  cars.    On  the  Canadian  Pa- 
cific, the  figures  for  sleeping-car  business  were  5.9  per 
cent,  and  for  parlor-car  business  they  were  1.2  per  cent. 
But  to  carry  in  Pullmans  and  parlor  cars  7  per  cent  of 
the  total  number  of  passengers  meant  that  the  mileage  of 
these  cars  was  20  per  cent  of  the  total  passenger  car 
mileage.    In  part,  this  is  due  to  such  equipment  being 
used  on  the  longer  hauls;  in  part,  it  is  due  to  the  lesser 
carrying  capacity  of  each  such  car. 

89.  ''Dead''  weight.— The  lesser  average  loading  in 
passenger  car  business  means  an  increase  in  tare.    In 
passenger  business,  competition  in  service  has  led  to 
increasing  weight  of  car.    This  is  especially  noticeable 
m  sleeping  car  traffic.    West  of  Winnipeg,  to  and  from 
Vancouver,  there  is  a  solid  Pullman  movement  as  there 
IS  between  Chicago  and  the  Pacific  Coast  of  the  United 
States.    This  has  been  characterized  by  the  carriage  of 
additional  weight,  observation  cars,  bufl'et  cars,  etc.    The 
competition  has  been  one  in  luxury  and  service,  not  in 
rate.    The  "Overland  Limited,"  which  has  an  excess  fare 
of  $10  on  Its  run  between  Chicago  and  San  Francisco, 
has  in  addition  to  observation  cpr  and  club  car  the  fol- 
lowing additional   services:   barber  and   baths,   valet, 
stenographer,  ladies'  maid,  telephone,  electric  ventila- 
tion, telegraphic  news  service,  stock  and  market  reports. 
It  may  be  argued  that  a  lesser  composition  in  point  of 
luxury  would  have  been  a  better  business  policy. 
In  Germany,  calculating  13^  passengers  as  weighing 


PASSENGER    RATES 


465 


a  ton,  it  has  been  computed  that  98.75  per  cent  of  the 
wei^'ht  hauled  is  dead  weight.     Of  course,  passenger 
fares  are  not  calculated  on  weight;  but  the  computation 
is  of  some  value  as  indicating  where  some  of  the  cost  of 
passenger  business  is  to  be  found.    In  Canada,  a  first- 
class  passenger  car,  with  a  maximum  seating  capacity 
of  80,  has  a  dead  weight  of  52i  tons.    A  sleeping  car 
averages  60  tons.     Such  cars  are  supplied  with  both 
upi)er  and  lower  berths.     Normally,  the  upper  berths 
are  in  use  only  about  one-fifth  of  the  time.    In  the  sum- 
mer months,  all  the  accommodation  in  a  sleeping  car 
may  be  taken  up.    At  other  seasons,  there  is  often  much 
empty  space.  Calculations  made  by  the  Canadian  Pacific 
for  certain  winter  months  in  1910  showed  in  January  of 
that  year  between  Montreal  and  Toronto,  which  is  a 
heavy  passenger  run,  88  per  cent  of  the  lowers  and  29 
per  cent  of  the  uppers  occupied  westbound;  while  east- 
bound  the  percentages  were  86  per  cent  and  27  per  cent 
respectively.    For  the  month  of  March,  between  Toronto 
and  Winnipeg,  the  percentages  of  occupancy  were  re- 
spectively 20  per  cent  and  14-  per  cent.    In  the  same 
month,  between  Montreal  and  Vancouver,  the  occu- 
pancy westbound  was  70  per  cent  and  34  per  cent,  while 
eastbound  it  was  59  per  cent  and  14  per  cent. 

The  average  passenger  haul  is  kept  down  by  the 
amount  of  suburban  traffic,  while  in  freight  business  the 
average  haul  has  tended  to  increase  because  of  the  long 
haul  of  staple  products.  As  interurban  electric  lines  are 
developed,  they  will  take  more  of  this  short  distance  traf- 
fic, with  the  result  that  the  average  haul  will  increase. 

In  general,  the  difference  between  freight  and  pas- 
senger business  is  much  the  same  as  the  difference  be- 
tween carload  and  less  than  carload  business.  It  is  pos- 
sible to  handle  freight  in  a  wholesale  way.    Passenger 

c— III-SO 


466 


TRAFFIC 


business  has,  except  in  the  case  of  excursion  and  similar 
traffic,  to  be  handled  in  a  retail  way. 

90.  Passenger  rates  and  the  Railway  Act  of  Canada,— 
Passenger  tariffs  are  classified  as  standard  and  special. 
Standard  passenger  tariffs  may  express  the  mileage  they 
cover  in  the  same  way  as  in  standard  freight  tariffs. 
Special  tariffs  specify  the  passenger  tolls  to  be  charged 
when  such  tolls  are  lower  than  the  standard.  The  re- 
quirements as  to  the  approval  of  standard  passenger 
tariffs  are  the  same  as  in  the  case  of  standard  freight 
tariffs.  The  requirements  in  regard  to  the  filing  and 
coming  into  force  of  special  passenger  tariffs  are  the 
same  as  in  the  case  of  special  freight  tariffs,  except  that 
the  public  notice  is  limited  to  three  days. 

The  board  is  also  given  a  wide  discretion  based  on 
"the  exigencies  of  competition  or  otherwise"  to  deter- 
mine, notwithstanding  the  provisions  of  the  statute,  the 
time  or  manner  within  and  according  to  which  publi- 
cation of  any  special  tariff  is  to  be  made. 

The  railways  may  grant  free  or  reduced  rates  to  the 
Dominion,  any  provincial  or  municipal  government, 
fairs  and  exhibitions  in  connection  ^vith  exhibition 
thereat,  to  charitable  societies  and  the  necessary  agencies 
of  such  institutions  in  connection  with  the  carriage  of 
destitute  or  homeless  persons. 

In  defining  the  services  just  set  out,  the  word  "traf- 
fic" is  used  in  the  Railway  Act.  This  covers  both  pas- 
senger and  freight  business. 

Railways  may  issue  mileage,  excursion,  or  commuta- 
tion -ates,  and  may  carry  at  reduced  rates  immigrants 
or  settlers  and  their  effects  as  well  as  any  member  of 
any  organized  association  of  commercial  travelers  with 
his  baggage.  They  may  carry  at  free  or  reduced  rates 
their  own  officers  and  employees,  or  their  families, 


PASSENGER    RATES 


467 


former  employees  of  any  railway,  members  of  the  pro- 
vincial legislatures  or  of  the  press,  members  of  the  In- 
terstate Commerce  Commission  of  the  United  States, 
tlieir  officers  and  staff,  with  baggage  and  equipment. 
The  railways  may  also  carry  free  or  at  reduced  rates 
such  additional  persons  as  the  board  may  approve  or 
permit.  Exchange  of  free  transportation  between  the 
principal  officers  of  railways  is  permitted  in  respect  of 
the  carriage  of  their  officers  and  employees  and  their 
families,  or  their  goods  and  effects. 

The  statute  also  provides  for  the  free  transportation 
as  a  matter  of  right  of  members  of  the  Senate  and  House 
of  Commons,  the  members  of  the  board  and  such  offi- 
cers and  staff  of  the  board  as  it  may  determine. 

91.  Standard  rates  in  effect.— In  1907  the  board 
issued  an  order  requiring  the  Canadian  Pacific  and  the 
Grand  Trunk  to  reduce  their  standard  rates  east  of  the 
Calgary  and  Edmonton  Railway  to  8  cents  a  mile.  At 
the  same  time  the  other  railways  were  circularized  to 
see  whether  their  condition  would  stand  the  reduction. 
Subsequently,  the  Canadian  Northern  reduced  its  rates 
to  the  3-cent  basis.  The  rates  west  of  the  Calgary  and 
Edmontor  line  remained  at  4  cents.  The  justifiability 
of  this  difference  in  rate  is  involved  in  the  Western  Rates 
Case  before  the  board. 

Before  the  order  was  issued  there  were  various  stand- 
ards on  the  diflPerent  railways.  On  the  Alberta  Rail- 
way and  Irrigation  Company  the  standard  was  5  cents. 
On  the  Algoma  Central  and  on  the  Atlantic  and  Lake 
Superior  it  was  4  cents.  On  the  Grand  Trunk  (with 
the  exception  of  the  line  from  St.  Lambert  Junction  to 
Rouses'  Point,  a  distance  of  44  miles,  on  which  the  rate 
was  4  cents)  the  standard  was  3i  cents.  On  the  Cana- 
dian Pacific  in  Manitoba,  the  rate  was  3  cents;  while  in 


468 


TRAFFIC 


Saskatchewan  and  Alberta  it  was  8i  cents.  A  similar 
condition  existed  on  the  Canadian  Northern  lines  in  the 
West.  On  various  sections  of  its  lines  east  of  the  Great 
Lakes,  the  Canadian  Pacific  had  rates  of  8,  8i,  and  8i 
cents. 

The  present  situation  is  that  the  general  standard  rate 
in  British  Columbia  is  4  cents.  The  British  Columbia 
Eastern  Railway  has  a  rate  of  6  cents.  In  British  Co- 
lumbia and  the  Yukon,  the  White  Pass  and  Yukon 
Route  between  the  Alaskan  boundary  and  White  Horse 
has,  under  exceptional  circumstances,  a  rate  of  18  cents 
per  mile.  The  Klondike  Mines,  a  short  railway  in  the 
Yukon,  has  a  rate  of  from  15  cents  to  20  cents  per  mile. 
East  of  the  Calgary  and  Edmonton  line,  the  following 
exceptions  from  the  8-cent  standard  are  to  be  found:  4 
cents— Algoma  Central  and  Algoma  Eastern,  Kent 
Northern,  Quebec  Oriental,  and  Atlantic,  Quebec  and 
Wes'-rn;  3i  cents— the  Pass  division  of  the  Canadian 
Northern,  Brockville,  Westport  &  Northwestern,  Tem- 
iscouata,  Halifax  and  Southwestern,  New  Brunswick 
and  Prince  Edward  Island,  New  Brunswick  Coal  and 
Railway  Co. ;  3^  cents— Dominion  Atlantic.  The  mile- 
age covered  by  these  exceptions  east  of  the  Calgary 
and  Edmonton  line  is  1,057  miles. 

92.  Different  kinds  of  passenger  tickets.— The  dif- 
ferent kinds  of  tickets  in  use  on  the  Canadian  Pacific 
may  be  taken  as  typical. 

Mileage  tickets  in  books  of  coupons  covering  1,000 
miles  are  issued  east  of  Port  Arthur.  To  be  used  on  a 
tr-in  the  coupons  must  first  be  exchanged  for  regular 
transportation.  Ticket  will  not  be  honored  if  lost.  On 
a  first-class  one-way  ticket  over  more  than  one  line,  the 
company  acts  as  agent  and  assumes  no  responsibility 
beyond  its  own  lines.    No  stop-over  is  permitted,  unless 


PASSENGER    RATES 


469 


especially  provided  for.   An  emigrant  ticket  is  good  only 
for  five  days  from  date  of  issue  and  for  continuous  pas- 
sage.   No  stop-over  is  allowed.    Conductors'  tickets  are 
issued  on  train  at  a. charge  of  10  cents  over  regular  fare; 
this  10  cents  being  redeemable.    Arrangements  are  also 
made  to  sell  regular  transportation  on  the  train  in  the 
case  of  passengers  getting  on  at  flag,  or  non-agency,  sta- 
tions.   The  second-class  ticket  has  the  same  general  lim- 
itations as  the  first-class.     Commutation  tickets  are 
issued:  in  10-trip  tickets,  good  for  continuous  passage 
only,  with  no  stop-over;  scholars'  46-trip  tickets,  good 
only  for  continuous  trip  with  no  stop-over,  not  good 
after  date  of  expiration  even  if  a  portion  is  unused,  and 
if  lost,  a  duplicate  will  not  be  issued;  56-trip  tickets  with 
same  conditions.    In  connection  with  commutation  tick- 
ets, marketing  stamps  are  issued.    These  may  be  use4 
by  suburban  holders  of  55-trip  tickets.    They  provide 
for  free  transportation  of  25  pounds  of  marketing  in 
baggage  car  on  one  day.    Marketing  is  defined  as  being 
perishable  table  food  supplies.    The  tickets  used  between 
Nelson  and  Kootenay  Landing,  on  the  boat,  have  in  ad- 
dition to  the  usual  conditions  on  first-class  tickets,  the 
condition  that  if  the  vessel's  legal  carrying  capacity  is 
all  taken  when  the  ticket  is  presented,  then  the  com- 
pany's liability  is  limited  to  the  redemption  of  the  un- 
used portion  of  the  ticket. 

In  the  case  of  excursion  tickets  over  two  or  more  lines, 
such  as  the  nine  months'  round  trip  to  Pacific  Coast 
points,  in  connection  with  which  a  series  of  options  as  to 
routes  is  permitted,  provision  is  made  for  identification  of 
the  passenger.  There  is  also  a  provision  that  the  return 
portion  of  the  ticket  will  not  be  good  for  passage  unless 
validated  by  the  agent  designated  for  this  purpose. 

Traveling  on  freight  trains  is  permitted  in  cases  of 


470 


TRAFFIC 


emergency  and  on  special  permission  from  the  Super- 
intendent of  the  Division,  or  any  higher  official.  A  re- 
lease from  liability  in  excess  of  $25  in  case  of  accident 
has  to  be  given.    First-class  fare  is  charged. 

On  all  of  the  tickets  issued  there  is  the  general  condi- 
tion that  they  are  not  transferable.  The  contract  is  a 
personal  one  as  between  the  railway  and  the  passenger. 
The  sale  of  an  unused  portion  of  a  ticket  is  in  Canada, 
under  R.  S.  C,  1886,  Chap.  110,  s.  s.  7  and  8,  a  criminal 
offence.  Provision  is  made  for  refund  of  unused  portion 
of  a  ticket. 

The  tickets  issued  permit  the  carriage  of  150  pounds 
of  baggage  for  each  adult,  and  75  pounds  for  each  half- 
fare  ticket.  The  liability  for  loss  of  baggage  is  limited 
in  the  ticket  to  $100. 

98.  Sleeping-car  service. — The  sleeping-car  service, 
which  is  now  regarded  as  one  of  the  necessary  comforts 
of  long  distance  traveling,  has  been  connected  with 
Canadian  railway  travel  since  Confederation.  The  first 
Pullman  car,  the  "President,"  was  put  in  operation  on 
the  Great  Western  Railway  in  1867.  It  was  a  combina- 
tion sleeper  and  kitchen  with  portable  tables.  When  the 
Pullman  Company  operates  the  service  under  contract, 
as  on  the  Grand  Trunk,  the  arrangement  is  that  if  less 
than  a  sum  set  out  in  the  contract  is  earned  per  car  per 
annum,  the  railway  pays  mileage.  When  this  guaranteed 
sum  is  reached  no  mileage  has  to  be  paid.  When  a  cer- 
tain fixed  sum  is  exceeded  then  the  railway  receives  one- 
half  of  the  excess.  In  the  case  of  the  Canadian  Pacific, 
the  Great  Northern,  the  Canadian  Northern,  and  the 
Grand  Trunk  Pacific,  the  sleeping  cars  are  operated  by 
the  railways  themselves. 

The  rate  basis  of  sleeping-car  tariffs  now  in  force  is, 
east  of  Calgary,  6  mills  per  mile,  with  20  per  cent  off  on 


PASSENGER   RATES 


471 


ui)per  berths.  West  of  Calgary  the  basis  is  8  mills  per 
mile,  with  the  same  reduction  for  upper  berths.  The 
parlor  car  rates  are  based  on  a  charge  of  5  mills  per  mile 
east  of  Calgary,  and  I  per  cent  per  mile  west  thereof. 
94.  Cloiiified  pasaenger  ratM.— While  the  matter  of 
ability  to  pay  is  recognized  in  passenger  rates,  it  is  not 
organized  in  the  same  way  as  in  freight  business.  Pas- 
se!«ger  rates  average  to  a  greater  condition,  than  do 
freight  rates,  differing  conditions  of  travel  and  of  pas- 
sengers. 

The  railway  between  Montreal  and  Lachine-  which 
was  opened  m  1847,  had  the  English  style  of  compart- 
ment car*— the  first,  second,  and  third-class  accommoda- 
tion being  supplied  on  the  one  car.  The  charter  of  the 
(Jrand  Trunk,  under  the  influence  of  the  movement 
which  culminated  in  England  in  the  provision  for  "Par- 
liamentary" trains,  provided  for  a  third-class  service  be- 
tween Toronto  and  Montreal  at  the  rate  of  one  penny 
per  mile.  The  Privy  Council  has  stated  that  this  pro- 
vision is  still  binding. 

But  while  in  Canada  it  was  apparently  assumed  that 
passenger  traffic  would  be  divided  into  three  classes,  such 
a  development  has  not  taken  place. 

The  Railway  Act  does  not  provide  for  second-class 
fares.  In  eastern  Canada  second-class  fares  grew  up 
as  a  measure  of  segregation  in  connection  with  the  car- 
riage along  the  lakes  and  the  St.  Lawrence  of  the  lum- 
ber jacks,  Indians,  and  others  working  as  day  laborers 
in  the  lumber  industry.  These  rates  were  also  used  in 
connection  with  colonization.  While  they  were  put  on 
on  the  original  Grand  Trunk  line  and  were  later  met 
by  the  Canadian  Pacific  in  competition,  they  are  not  in 
general  use  in  eastern  Canada. 

Second-class  rates  from  eastern  to  western  Canada 


472 


TRAFFIC 


Mere  also  put  in  to  aid  colonization  and  settlement     Tf 
.  c„ed  by  the  railways  that  the  nerdl?the' J 
ond-class  rates  for  this  purpose  has  passed,  as  there  L 
not  any  considerable  movement  of  colonist    f rom  eas 

Tted  rtf"  '''^''''  ''^^*  ^'  *^^  movemTm,  t 
United  States  who  move  on  special  fares,  in  many  cases 
ower  than  second-class.    Second-class  rates  a^e"n  fZl 

xrctat  1  ^^^"*^  ^"  ^^^*-  toXit : 

Ttes    th^T.  S      "  ""  ^'^«"^Pl^  «f  the  relation  of  the 

cZr^^^^^^^^^^  ^--  Ottawa  to 

.1    A    I       .J  '  ^^«t-^^ass  limited,  $55.70,  while  the 
^eond-c  ass  .  $41.70.    In  general,  from  p Jn  sTn    n^e 
d  ate  to  AVmmpeg  and  Vancouver,  there  are  no  secL 
class  rates  east  of  Winnineff     VmL  \r  second- 

ninPD-  th^  To  r  vP^P^^'  ^  ^^m  Vancouver  to  Win- 
nipeg the  Canadian  lines  made  a  hlnnV^f  e^  j  V 
ratp  of  <ftj.n  +«  ^  i.  a  /"""^  »  oianket  second-class 
rate  of  $40  to  meet  American  competition.  That  is  to 
say,  from  any  intermediate  point  to  Winnin Jf?  ! 
w  II  annlv  iinf;i  ^u  c  ^  i^""!!.  to  ^^  innipeg  this  rate 
till  ^^ ,  ^  first-class  rate  is  lower,  the  latter 

Sof„asCa„adaa„dttu:i::,raraTerCTJ- 
It  may  be  said  that  in  reality  the  P„ll^  -^^e  conceined, 

c...  and  the  standard  JXs  :ar  t  'e~<^lr 

95.  Passenger  cimses  in  Europe  ~ln  vTrnrT'.v. 
praeti«  of  hav,V  three  e.a.e.  a„7eve^f„tXa t 


PASSENGER   RATES 


478 


2 

3 

4 

9.5 

60.8 

27.63 

14.47 

84.39 

10.19 

86.74 

7.3 

92.6 

13.2 

84.8 

12.7 

86.7 

6.2 

90.7 

24.3 

71.7 

31.7 

62.7 

1.4 

1.0 

97.3 

1 

Germany 37 

Switzerland 94 

Belgium 3.00 

Norway 1 

Sweden 3 

Denmark 6 

United  Kingdom 3.1 

Italy 4.0 

France 5.9 

India 3 

The  average  haul  in  Europe  as  set  out  in  the  follow- 
ing summary  is  an  index  of  travel  conditions: 

Germany 14 .  24  miles 

Switzerland 13 .0 

Belgium  15.4  " 

Norway 16. 1  " 

Sweden 16.6  " 

Denmark 21 .8  " 

United  Kingdom 7.8  " 

Italy 25.0  " 

France 20.5  " 

As  a  means  of  reduction  of  passenger  rates,  the  "zone" 
tariff  system  of  Hungary,  which  was  adopted  in  1889, 
was  hailed  when  it  was  introduced  as  a  revolutionary 
change.  As  a  matter  of  origin,  it  may  be  said  that  a 
New  Zealander,  Samuel  Vaile,  claims  that  this  idea  was 
first  developed  in  his  "stage"  system  of  rate-making  in 
1882,  and  from  it  adopted  in  Hungary.  The  zone  sys- 
tem was  worked  out  on  the  basis  of  14  zones  which 
increased  in  size  as  the  distance  from  Buda-Pesth 
increased.  Within  each  zone  there  was  a  flat  rate.  In 
reality,  instead  of  computing  rates  on  a  mileage  basis, 
the  zone  or  fixed  number  of  miles  was  taken  as  the  unit. 
The  idea  was  to  develop  longer  distance  traveling.  To 
the  extent  that  it  was  successful  in  this,  the  shorter  hauls 
were  helping  to  pay  for  the  longer  hauls.  The  diffi- 
culties which  have  arisen  as  to  journeys  between  points 
in  two  zones,  such  points  being  located  near  the  bound- 


474 


TRAFFIC 


ary  of  the  two  zones,  have  been  such  that  various  modi- 
flcafons  have  been  introduced  so  that  it  now  diffeX 
httle  from  the  ordinary  distance  basis. 

The  zme  system  is  used  in  connection  with  street  raU- 
way  raiBc  m  the  United  Kingdom  as  distbi^isM 
from  the  flat  rate  system  for  the  total  distance  Sh« 
been  used  m  Canada  and  in  the  United  States    7 

^ImMA^l  T^  *^'''^"  ™  *'  Manchester  and 
Sheffield  d.str,ct.  But  the  situation  here  was  different 
from  that  ,n  Hungary,  for  here  the  adoption  of X  Ze 
system  was  concerned  with  short  distance  traffic  wS 
had  to  meet  electric  railway  competition. 

the  cl«ntf';4''""'""«  "^■"^^  '«''»  "Oopted  on 
the  Continent  of  Europe  are,  in  general,  of  three  kinds- 
he  stnct  distance  tariff,  for  example,  m  ^rmany.  wte« 
the  fare  is  so  many  pfennigs  for  each  class  for  erch  H^ 
meter  taveled;  the  tapering  tariff,  as  in  Itety  undt 
which  the  charge  per  kilometer  decreases  as  the  diston« 
.ncrea.es:  the  zone  system,  a  tapering  tariff  under  S 
the  rates  are  the  same  to  all  stations  within  a  partM„ 
zone,  radically  decreasing  to  the  stations  in  tte  «S 

Ty'vin^  thaZ"'''  **"  '"'"'"°"  ""^  ^  »"-"-^^ 

4.U*  J      ..  1  ^"0,1  ^c  lur  use  oi  an  express  train* 

third,  a  ticket  tax;  fourth,  a  fee  for  registering  any  W 
gage  which  IS  not  carried  by  hand 

the  case  of  passenger  business,  as  in  the  case  of  freight 
bus  mess,  it  is  practically  impossible  to  make  anv  Jm 
parisons  of  value  between  foreign  conditions  and  Z-' 
ditions  on  this  continent.    There  is  lack  J. 
denominator.     Whe,.  the  aver^g    haul  °  shortT;: 
apparent  that  a  lower  standard  o^f  comfort  or  «! 


PASSENGER   RATES 


475 


ence  is  required  in  connection  with  the  accommodation 
supplied.  When  fourth-class  traffic  moves,  as  in  Ger- 
many, it  is  characterized  by  a  degree  of  discomfort  whose 
only  palliative  is  its  economy.  Whether  traffic  will  move 
in  third  or  even  in  f  arth-class  accommodation  in  a  par- 
ticular country  depends  on  ':he  length  of  the  journey, 
the  services  and  conveniences  demanded,  and  above  all 
on  the  general  standard  of  economic  well-being.  From 
the  standard  of  personal  sacrifice,  the  payment  by  a  na- 
tive of  India  of  .4  cents  per  mile  on  standard  gauge 
lines,  or  of  .3  cents  on  the  narrow  gauge  lines,  means  a 
heavier  deduction  from  his  income  than  does  the  pay- 
ment of  1.9  cen*s  per  mile  by  the  average  passenger  in 
Canada. 


CHAPTER   VII 

PRACTICAL   PHASES   OF   RAILWAY   BUSINESS 

97.  Common  law  obligation,  of  the  rmfeaM —Th. 

common  w  which  applied  to  the  earlier,  370™ 

of  carnage  has  been  made  applicable,  except  in  ^  fa™ 

t  has  been  modified  by  statute,  to  the  railway  which 

«  to-day  the  most  striking  example  of  the  coZ.;^ 

Hutchinson,  in  his  work  on  "CarnVrs  "  1.0    ^  zs     1 
—n  carrier  as  follows:  "1  commor;,  Jrblttl: 
s  one  who  undertakes  as  a  business,  for  hire  cr  retarf 
to  carry  from  one  place  to  another  the  goods  of  111  Ir 
sons  who  may  apply  for  such  carriagcprovided  ttJ 
goods  are  of  the  kind  which  he  profesl    t~  and 
unonTrr;^ ''""«  '"■"  "^^^  *°  have  them  »rri^ 
ICf^     7"'  *"■"'  P''''"^  by  the  carrier    and 
«ho  ,f  he  refuses  such  goods  for  thoL  who  are  wilW 
to  comply  w,th  his  terms  becomes  liable  to  an  actio"  by 
the  aggrieved  party  for  such  refusal  "  ^ 

riJlriifble'a"''  ""'"'^ "l  "^'-  *■"" '"«  ««™»on  car- 
rier  was  liable  as  an  insurer  for  all  goods  which  he  und^r 

::rierarZmi"l^"^""v"'^  ^'"•"  "^^^^^^n 
earner  at  common  law  may  be  summarized  as  follows- 

He  was  liable  as  an  insurer  of  the  goods,  ex^pt' in 
cases  arising  from except  m 

(a)  The  act  of  God. 

(b)  The  King's  enemies. 

(e)   Inherent  vice  or  defect  in  the  goods. 

476 


PRACTICAL   PHASES    OF   RAILWAY   BUSINESS    477 

All  of  these  exceptions  have  been  the  subject  of  judi- 
cial definition.  Items  a,  b,  d,  and  e  are,  however,  subject 
to  the  condition  as  defences  that  the  negligence  of  the 
carrier  did  not  concur  therein.  Negligence  is  in  law  the 
omitting  to  do  something  that  a  reasonable  person  would 
do,  or  doing  something  that  a  reasonable  person  would 
not  do.  While  carriers  are  insurers  as  to  freight,  in  the 
case  of  passengers  they  are  liable  only  for  negligence. 

At  common  law,  as  soon  as  goods  were  delivered  to  the 
carrier,  he  had  the  risk  of  safe  custody  as  well  as  the 
duty  of  carrying  as  directed.  His  liability  did  not  rest 
on  contract.  However,  it  was  in  time  established  that 
he  might,  in  consideration  of  a  reduced  rate,  limit  the 
common  law  liability  by  special  contract,  providing  such 
contract  was  not  (a)  contrary  to  an  express  provision  of 
la.v,  (b)  contrary  to  public  policy,  or  (c)  unjust  or  un- 
reasonable. 

When  the  contract  of  carriage  of  the  carrier  was  ter- 
minated and  the  goods  remained  in  the  possession  of  the 
carrier  as  a  warehouseman,  he  was  no  longer  liable  as 
an  insurer,  his  liability  for  loss  or  damage  being  depend- 
ent on  some  negligence  on  his  part  being  shown. 

98.  Bill  of  lading  and  its  conditions. — As  an  incident 
of  the  necessary  contractual  relations  of  the  shipper  and 
the  railway,  there  came  into  existence  a  bill  of  lading 
setting  out  the  conditions  of  carriage  and  the  liability  of 
the  railway  thereunder. 

The  Railway  Act  of  Canada  provides  that  no  contract, 
condition,  or  by-law,  regulation,  declaration,  or  notice 
limiting  the  liability  of  a  railway  in  respect  of  the  car- 
riage of  any  traffic  is  to  be  valid  unless  approved  by  the 
board,  and  the  board  is  empowered  to  define  the  extent 
to  which  such  liability  may  be  limited.  While  the  rail- 
way is  a  common  carrier,  whose  liability  has  been  further 


47S 


TRAFFIC 


defined  by  statute,  it  may  refuse  to  take  any  naeka.^ 
wK.oi,       "^"/anuary  16,  1913,  the  regulations  under 

^':Z'7^'z::t '-  '^""^'  "'-"'^-  """^  <-'■ 

In  1909  as  a  result  of  a  series  of  conferences  between 
representatives  of  the  shippers  and  of  the  ™il«^ys  ^ 
urn  or„  bdl  of  lading  applicable  to  Canadi  „  "fmH^, 
drafted  and  approved  by  the  board.    The  provisions  „f 

99   LiMmy.-ln  general,  the  railway  is  an  insurer 

B  not  bable  m  cases  covered  by  the  various  conunon  law 
defenses.    Nor  ,s  it  liable  for  loss,  damage  or  delay  due 

Aes  caused  by  natural  shrinkage  or  diserepaneiesTefe- 
vator  we-ghts  when  such  elevators  are  not  operatedt^ 
the  carrier  unless  the  weights  are  evidenced  by  govern^ 
ment  cert.ficates;  nor  for  any  loss,  damage,  or  deCdue 
to  the  authority  of  law,  or  of  quarantine  detenC    I 
>s  hable  only  for  negligence  where  goods  are  stopped  L 
tans,t  at  the  ,«,„est  of  the  party  entitled  to  rnake  ih 
request ;  or  where,  in  accordance  with  general  custom^he 
goods  are  carried  in  open  cars. 
Where  goods  are  carried  at  "owner's  risk,"  the  shioner 

assumes  the  risks  incidental  to  tran.,portat  „„;  the  rS 

way,  however,  being  liable  for  negligee 
Except  in  ease  of  diversion  from  rail  to  a  water  route 

goods  carried  by  water  over  any  portion  of  the  jol^^' 


PRACTICAL   PHASES    OF   RAILWAY   BUSINESS   479 

are  subject  to  the  provisions  of  the  statute  and  of  the 
bill  of  lading;  provided,  however,  that  in  respect  of  the 
water  route  the  carrier  is  not  liable  for  any  loss  or  dam- 
age resulting  from  the  perils  of  the  lake,  sea,  or  other 
water,  or  from  explosion  or  any  other  cause  not  due  to 
its  negligence ;  or  from  other  accidents  of  navigation  or 
from  prolongation  of  the  voyage. 

The  company  is  not  liable  for  loss  or  damage  arising 
from  any  dangerous  article. 

Under  the  former  bill  of  lading,  the  company  assumed 
no  liability  off  its  own  lines  and  acted  only  as  the  agent 
of  the  owner  off  its  own  lines.  Under  the  present  bill, 
in  the  case  of  a  movement  from  one  point  to  another  in 
Canada,  or  where  goods  are  carried  on  a  joint  tariff, 
the  initial  carrier  is  liable  in  respect  of  any  loss  or  dam- 
age occurring  on  the  lines  of  the  connecting  carrier,  and 
from  which  such  connecting  carrier  is  not  exempt  under 
the  provisions  of  the  bill  of  lading,  the  onus  being  on  the 
initial  carrier.  The  latter  is  entitled  to  recover  from  the 
connecting  carrier.  The  person  aggrieved,  however,  re- 
tains any  right  of  action  he  may  have  against  the  initial 
or  the  connecting  carrier. 

The  American  rule,  as  set  out  in  the  earlier  decisions, 
was  that  for  a  carrier  to  be  liable  in  respect  of  the  portion 
of  a  through  movement  which  was  off  its  own  line,  there 
must  be  a  positive  agreement,  either  express  or  implied, 
extending  the  liability.  In  the  English  rule,  the  posi- 
tion was  different.  When  the  carrier  accepted  for  a 
through  movement  to  a  point  off  its  own  line  on  the 
line  of  a  connecting  carrier,  the  first  or  contracting  car- 
rier became  liable  no  matter  by  whom  the  goods  might 
be  lost;  it  became  exclusively  responsible  and  it  alone 
could  be  sued  by  the  aggrieved  person.  Any  attempt  to 
hold  the  subsequent  or  connecting  carrier  liable  for  this 


480 


TRAFFIC 


loss,  although  it  might  have  happened  from  its  nedi- 
gence  or  fault,  would  fail  because  of  the  want  of  privity 
or  contract  between  such  carrier  and  the  injured  party 
It  was,  of  course,  open  to  the  carrier  to  safeguard  itself 
by  special  contract. 

When  the  carrier  limited  by  contract  its  obligation  so 
that  It  acted  only  as  the  agent  of  the  shipper  in  respect 
of  the  movement  off  its  own  line,  it  was  naturally  a  diffi- 
cult matter  for  the  shipper  to  localize  the  cause  of  loss 
and  determme  against  whom  action  should  be  brought 

100.  Insurance.-Wh^n  any  person  is  reimbursed  on 
account  of  loss  or  damage,  the  carrier  may  have  the 
advantage  of  the  insurance  in  effect  upon  such  goods 
subject  to  its  reimbursing  the  person  so  assured  for  the 
premmm  paid. 

101.  Liability  as  a  tcarehomeman.—The  railway  is 
not  liable,  except  as  a  warehouseman-in  which  capacity 
It  is  answerable  for  want  of  reasonable  care— for  loss 
damage,  or  delay  caused  by  fire  occurring  forty-eight 
hours,  on  general  traffic,  and  seventy-two  hours,  on 
bonded  goods,  after  ^vritten  notice  of  the  arrival  of  the 
goods  at  destination  has  been  sent  or  given.    Both  these 
time  periods  are  exclusive  of  legal  holidays.    After  these 
periods  have  expired,  the  goods  may  be,  on  warehouse- 
man  s  liability,  kept  in  the  car,  station,  or  place  of  deliv- 
ery, subject  to  reasonable  storage  charges;  or  the  goods 
may  be  removed  to  a  public  or  licensed  warehouse  and 
there  held  at  the  owner's  cost  and  risk.    For  examole 
under  C.  P.  R.  tariff'  C.  R.  C.  No.  E  2680,  efl'ective 
Aovember  18,  1913,  warehouse  or  shed  freight  (that  is 
goods  and  merchandise  usually  handled  in  the  regular 
freight  sheds  and  auxiliary  warehouses  of  the  railway) 
are  subject  to  the  following  charges  after  the  free  time 
has  elapsed: 


PKACTK'AL   PHASES   OF   RAILWAY   BUSINESS   481 


IS 


For  the  first  week,  or  part  thereof — 

L        1        1        1         '^  6    7    8    10  CImw*. 

3    3    3    3    3    1}    1}    U    li  CenU  per  100  pounds. 

For  the  second  week,  or  part  thereof,  and  each  suc- 
ceeding week,  or  part  thereof — 

•«344678         10    ClaiWM. 


6 


6 


6  3  S  3  3     Cents  per  100  poundit. 

Tliese  charges  are  subject  to  a  minimum  storage  charge 
for  any  single  consignment  of  15  cents  for  the  first  week, 
or  part  thereof;  for  the  second  week,  or  part  thereof, 
and  each  succeeding  week,  or  part  thereof,  30  cents. 
Under  the  former  bill,  the  responsibility  of  the  railway 
ceased  when  the  goods  were  placed  in  the  company's 
sheds  or  warehouses  at  destination,  and  storage  charges 
ran  from  twenty-four  hours  after  arrival. 

102.  Loss  and  damage. — Loss  or  damage  is  com- 
puted on  the  basis  of  the  value  of  the  goods  at  the  place 
and  time  of  shipment,  plus  freight  and  duty,  if  any,  paid, 
unless  a  lower  value  has  been  declared,  in  which  case  the 
lower  value  governs,  even  if  the  loss  or  damage  is  due 
to  negligence. 

Notice  must  be  given,  in  writing,  to  the  railway  either 
at  the  point  of  origin  or  at  the  point  of  delivery,  within 
four  months  after  the  delivery  of  the  goods;  in  case  of 
failure  to  make  delivery,  notice  must  be  given  within 
four  months  after  a  reasonable  time  for  delivery  has 
elapsed.  Under  the  old  bill,  claims  for  damages  or  loss 
had  to  be  presented  at  the  nearest  place  of  delivery  \  ithin 
tliirty-six  hours  after  delivery  of  the  goods. 

103.  Payment  of  charges.~The  owner  or  consignee 
may  pay  freight  either  before  or  after  delivery.  Under 
the  old  bill,  the  charges  had  to  be  paid  before  delivery. 

The  Railway  Act  provides  that  on  refusal  to  pay  tolls 

C-III-31 


482 


TRAFFIC 


they  may  be  recovered  in  any  court  of  competent  juris- 
diction. Instead  of  bringing  action,  the  railway  may 
seize  the  goods  and  hold  them  at  the  risk  of  the  owner 
as  security  for  the  payment  of  the  charges.  If  the  tolls 
are  not  paid  within  six  weeks,  the  railway,  after  adver- 
tisement, sells  the  goods,  reimbursing  itself  out  of  the 
proceeds.  If  the  goods  remain  in  the  possession  of  the 
railway  unclaimed  for  six  months,  it  may,  after  public 
notice,  sell  the  goods,  reimbursing  itself  out  of  the  pro- 
ceeds. If  the  balance  remains  unclaimed  after  three 
months,  it  is  to  be  deposited  with  the  Minister  of  Finance 
for  the  public  use. 

104.  Forma  of  the  bill  of  lading.~The  bill  of  lading 
has  three  sets  of  documents:  (a)  the  original  bill  of  lad- 
ing; (b)  the  shipping  order;  (c)  the  memorandum.  A 
and  c  are  for  the  shipper;  b  is  for  the  railway.  The 
railway  practice  is,  when  claims  are  made,  to  require  the 
surrender  of  the  original  bill  of  lading.  This  serves  two 
purposes;  being  the  original,  it  requires  no  verification; 
and  being  in  the  company's  possession  it  cannot  be 
wrongfully  utilized  by  any  person  who  might  otherwise 
use  it  as  a  basis  for  repeating  the  claim. 

There  are  two  bills  of  lading— the  straight  bill  and 
the  order  bill.  The  papers  concerned  with  the  straight 
bill  are  printed  on  white  paper;  the  order  bill  is  printed 
on  yellow  paper,  while  the  shipping  order  and  memoran- 
dum are  printed  on  blue  paper.  The  bill  of  lading  has  a 
uniform  size,  viz..  Si  inches  by  11  inches. 

When  the  "order"  bill  is  used,  it  is  for  transactions 
negotiated  through  the  banks.  For  example,  an  Ontario 
gram  dealer  may  sell  to  a  firm  in  Toronto.  He  draws 
a  draft  either  on  sight  or  on  demand  on  his  consignee, 
and  attaches  this  draft  to  the  biU  of  lading  which  carries 
title  to  the  goods.    His  bank  will  be  instructed  to  hold 


rUACTlCAL   PHASES   OF   RAILWAY   BUSINESS   483 

the  document  until  the  draft  is  paid.  The  net  amount 
of  the  draft  goes  at  once  to  the  credit  of  the  dealer's 
account.  Then  the  bank  owns  the  draft.  It  forwanls 
the  draft  and  bill  of  lading  to  Toronto.  The  Toronto 
firm  must  pay  the  draft  in  order  to  get  possession  of 
the  bill  of  lading,  which  is  its  title  to  the  grain. 

The  bulk  grain  bill  is  an  "order"  bill  with  the  same 
^'ciieral  terms  as  have  been  summarized  above. 

In  1904,  a  uniform  bill  of  lading  was  adopted  in  the 
1  'lilted  States.  The  board  has  sanctioned  the  use  of  this 
on  shipments  from  any  point  in  the  United  States  into 
Canada  and  in  the  transit  trade  through  Canada. 

Two  special  forms  to  be  noted  are  the  special  contract 
on  silver  and  other  valuable  ores,  in  which  the  railway 
limits  its  liability  to  $500.00  per  net  ton,  and  the  house- 
hold goods  "release"  in  which  a  lower  rate  is  given  on  a 
released  valuation  of  $5.00  for  any  one  piece  or  package. 
Both  in  English  and  in  Canadian  law  it  has  been  rec- 
ognized that  the  carrier  may,  by  contract,  exempt  itself 
from  liability  for  negligence;  such  exemption  has,  how- 
ever, to  be  put  in  express,  plain,  and  unambiguous  terms. 
Tiiere  are  a  number  of  contracts  dealing  with  liability  in 
respect  of  particular  commodities  or  services.    The  live- 
stock contract  is  at  present  being  worked  over  by  a  special 
committee  of  shippers  and  railway  representatives.    Men 
in  charge  of  property  other  than  live  stock  are  required  to 
sign  a  release  from  claims  for  injury,  whether  caused  by 
negligence  or  not.    The  potato  contract  of  the  Vermont 
Central  contains  an  exemption  from  negligence.     The 
same  provision  occurs  in  the  general  release  forms  of 
the  Michigan  Central  and  the  Niagara,  St.  Catharines, 
and  Toronto  Railways.     It  is  also  to  be  found  in  the 
contracts  of  the  Michigan  Central  and  the  Toronto, 
Hamilton,  and  Buffalo  in  the  case  of  animals  cairied 


484 


TRAFFIC 


in  baggage  cars.  In  the  case  of  circus  contracts,  a  niun- 
ber  of  Canadian  railways  recite  that  they  act  neither  as 
common  nor  as  special  carriers,  but  simply  as  hirers  of 
equipment  and  train  crews  to  the  circus  for  the  transport 
of  its  outfit,  and  that  the  latter  assumes  all  risks,  in- 
eluding  negligence. 

105.  Due  diligence.— Viiiess  arranged  under  special 
contract,  the  railway  is  not  bound  to  transport  goods  by 
a  particular  train  or  vessel,  or  in  time  for  a  particular 
niarket.  Its  obligation  is  to  use  "due  diligence."  Due 
diligence  in  law  means  everything  reasonable,  not  every- 
thing possible.  The  question  of  what  is  a  reasonable 
time  for  delivery  is  one  of  fact  for  the  jury,  and  it  has 
been  decided  that  no  definite  rules  can  be  stated  as  to 
what  will  and  what  will  not  constitute  unreasona..  'e  delay, 
as  this  must  depend  on  the  circumstances  of  each  case. 

106.  Actual  car  movements.—The  shipper  is  inter- 
ested in  obtaining  a  prompt  supply  of  cars  with  prompt 
movement  in  transit.  The  railway  is  interested  in  ob- 
taining the  greatest  possible  efficiency,  since  it  is  its  cars 
which  are  its  money  collectors.  But  while  it  w'lghf  ap- 
pear that  there  should  be  no  difficulty  in  obtaining  an 
ideal  combination  of  interests,  nevertheless  there  are 
difficulties  in  practice.  Expedited  movements,  e.  g.,  live 
stock,  time  freights,  and  various  other  circumstances 
and  conditions  interfere  with  the  balance  of  mutual  sat- 
isfaction. 

An  ordinary  freight  car  on  the  road  may  be  reckoned, 
while  in  motion,  to  move  at  10  miles  per  hour.  But  in 
1912,  the  average  movement  per  freight  car  per  day  in 
Canada  was  21.4  miles.  In  1908,  the  average  had  been 
only  16.1  miles.  Putting  certain  comparisons  in  a  sum- 
mary way,  the  following  results  for  1912  as  compared 
with  1908  are  obtainable: 


PRACTICAL   PHASES   OF   RAILWAY   BUSINESS    483 

AvoraRc  haul  of  freight  car  per  day  increased  by 84% 

Fni^ht  train  mileage  per  freight  engine  per  day  increaaed  by  81% 

Tonnage  increased  by ^''^ 

Freight  train  mileage  increased  by 49% 

That  is  to  say,  the  work  to  be  done  to  haul  a  ton  of 

freight  is  increasing  more  rapidly  than  tonnage. 

In  Canada,  in  1912,  the  average  haul  of  a  ton  of 
freight  was  218  miles.  With  a  freight  car  moving  21.4 
miles  per  day,  it  thus  took  on  the  Average  10.1  days  to 
make  this  journey.  Assuming  that  as  soon  as  the  car 
ends  this  journey  it  can  start  on  another,  the  maximum 
number  of  trips  it  can  make  in  a  year  would  be  thirty- 
six. 

At  the  same  time  there  has  been  an  increase  in  the 
cubical  contents  space  of  the  car,  and  a  great  increase  in 
maximum  tractive  efficiency.  For  example,  a  Grand 
Trunk  engine  built  in  1878  had  a  tonnage  rating  of 
from  800  to  550  tons,  while  an  engine  built  in  1912  for 
the  same  system  had  a  rating  of  from  1,500  to  2,.':00 
tons.  Time  or  manifest  freight,  that  is  to  say,  higher 
grade  goods  moving  in  train  loads  where  time  is  im- 
portant and  there  is  a  movement  on  a  relatively  fixed 
schedule,  attains  high  speeds.  The  Wabash  moves  out 
of  Samia  tunnel  behind  one  engine  2,000  tons  of  such 
freight,  which  goes  forward  at  25  miles  per  hour.  It 
is  manifest  that,  in  general,  the  transportation  efficiency 
is  far  within  the  maximum. 

107.  Demurrage. — Demurrage  is  a  charge  in  addi- 
tion to  the  rate,  such  charge  being  intended  to  compel 
prompt  loading  or  unloading  of  cars.  The  word  is  mari- 
time in  its  origin;  as  early  as  the  twelfth  century  it  was 
used  to  express  the  payment  for  detention  of  a  vessel 
beyond  the  normal  time  required  for  loading  or  unload- 
ing a  vessel.  In  railway  practice,  a  demurrage  charge 
is  not  a  car  rental,  but  a  penalty  charge.    In  Canada, 


486 


TRAFFIC 


this  IS  known  as  a  car  service  charge.  In  the  United 
Mates,  car  service"  is  used  to  describe  inter-raihvav 
handling  of  cars,  and  the  word  demurrage  is  used  to 
describe  what  the  Canadian  railways  call  a  car  service 
charge.  It  does  away  with  confusion  to  use  the  word 
demurrage  in  this  connection  throughout  the  text 

The  first  Car  Service  Bureau  in  the  United  States  was 
organized  at  Omaha  in  October,  1887.  This  was.  how- 
ev'  roncerned  only  with  a  co-operative  organization  to 
deal  with  common  interests.  The  principle  of  such  a 
charge  had  been  recognized  as  early  as  1872.  In  Canada 
the  principle  of  such  a  charge  was  adopted  by  the  Ca- 
)  adian  Pacific  and  the  Grand  Trunk  in  1892;  it  subse- 
quently extended  to  other  railways. 

In  1906,  the  Canadian  Car  Service  rules   (demur- 
rage)  as  amended  were  approved  by  the  board.    Under 
these,  there  are  in  general  allowed  f orty-eight  hours  free 
time  for  loadmg  or  unloading  a  car.    There  are  certain 
modifications  of  this.    In  unloading  coal,  coke,  and  lime, 
in  bulk,  and  in  the  loading  and  unloading  of  boards 
deals,  and  scantling,  there  are  seventy-two  hours  free 
time.    Lumber  and  hay  are  allowed,  for  export,  five  davs 
free  time  at  ISIontreal  and  tide-water  ports.    In  western 
Canada,  under  the  terms  of  the  Canada  Grain  Act 
twenty-four  hours  free  time  for  loading  are  allowed.' 
Where  it  ,s  necessary  to  clear  customs,  twenty-f  our  hours 
additional  free  time  is  allowed  for  this  purpose.    In  ad- 
dition, m  the  various  cases  the  consignee  is  allowed 
twenty-four  hours  after  arrival  to  pay  the  tolls  or  charges 
and  give  orders  for  special  placing  and  delivery.    For  all 
time  in  excess  of  the  periods  above  defined,  there  is  a 
charge  of  $1.00  per  day  per  car. 

108.  Causes  of  demvrrage.-nmcumes  in  unloading 
cars  may  arise  from  conditions  for  which  the  consi^ 


PRACTICAL   PHASES   OF   RAILWAY   BUSINESS   487 

is  not  responsible  and  over  which  he  has  no  control. 
Where  local  weather  conditions  render  loading  or  un- 
loading impracticable  during  business  hours,  the  time  al- 
lowance is  to  be  so  extended  as  to  allow  the  full  free 
time  of  suitable  weather.  There  is  also  the  "bunching 
rule,"  whose  scope  is  best  indicated  by  quoting  it. 

Rult  7.  When  owing  to  conditions,  for  which  the  railway 
company,  or  connecting  companies,  is  or  are  responsible,  or 
to  any  neglect  or  default  of  its  or  their  agents  or  employees 
or  to  storms  or  floods,  or  to  accidents  on  a  railway,  or  accident 
to  the  equipment  of  the  railway  company  or  companies,  cars 
are  tendered  to  the  consignee  in  numbers  beyond  his  ascertained 
reasonable  ability  to  unload  within  the  authorized  free  time, 
such  additional  time  shall  be  allowed  as  may  be  necessary  with 
the  exercise  of  due  and  reasonable  diligence  on  the  part  of  the 
consignee  to  unload  the  cars  so  in  excess. 

Each  railway  has  its  own  car  service  officials  and  de- 
partment. In  addition,  there  is  a  car  service  bureau 
which  was  organized  in  1906,  and  which  deals  with  com- 
plaints as  between  railways  and  with  complaints  from 
individuals  as  to  the  amount  of  demurrage  assessed. 

The  results  of  the  demurrage  situation  east  of  Port 
Arthur  for  a  given  period  are  summarized  in  the  follow- 
ing tabular  statement: 

Demurrage  Ecutem  Lines,  October,  1912,  to  June,  1913. 


Per  cent  of 
Car*  Rdeased 
in  Free  Tims 


Average  Detention  in  Days 
Railway     Consignee      Tdal 


Collection  per 

Car  Detained 

over  Free  Time 


Oct.-Dec.,  191«, 
Jan-March.  1913, 
April-June.  191», 


93% 


/o 
94% 


.52 
.46 


2.07 
1.88 
1.90 


2.73 
2.40 
2.36 


$  4.63 

10.70 

4.13 


The  high  average  collection  per  car  in  the  period  Janu- 
ary to  March,  1913,  is  due  to  special  conditions  which 
will  be  referred  to  later. 

109.  Demurrage  and  car  shortage. — The  importance 
of  the  demurrage  rules  is  especially  bound  up  with  the 


*^  TRAFFIC 

question  of  car  shortage,  which  is  a  phenomenon  that 
unfortunately  presents  itself  in  the  fall  of  the  year    At 
the  present  writing,  the  situation  is  better  than  it  his 
been  for  some  years.    In  the  Canadian  west  grain  has 
to  be  rushed  to  the  lake  front  in  as  great  a  degree  a 
possible  before  the  close  of  navigation.    Consequertly 
arge  stocks  of  ears  have  to  be  accumulated.    At  Z 
same  t,me  the  fall  is  a  busy  shipping  season  in  the  fleW 
of  general  merchandise.    Again,  in  the  trade  betw«„ 
Canada  and  the  United  States  there  are,  for  exampTe 
large  movements  of  hay.    If  this  hay  is  consigned  to  a 
readdy  congested  terminal,  such  as  New  York    the 
movement  of  a<lditio„al  cars  into  the  New  York  termi 
nals  may  be  stopped  for  a  time.    This  is  done  bX" 
ssuance  of  a  notice  known  as  an  embargo.    ThisV i„ 
force  untd  the  congestion  is  relieved.    I„  the  meln  me 
the  hay  cars  remain  under  load  either  in  the  teZZiZ 

oTthtrnthl'^"  ""^  "^ '-'  "^ '"  ^"'^  -"y  ^-™ 

While  it  is  tlie  intention  of  the  rules  that  a  car  shall 

themUr^l  T  "  ""'^''"'""-  ■'  ''^  P°»«We  that 

Tune     oATi   Tn  '"^'"""'*'  '"  '^'  P"'°d  April  to 
""  '  fnl'owmg  results  are  obtainable: 

ill  ."  '"'■  Py'"(?  charges  and  for  placinir  I  .1., 

(|    A  car  may  be  held  for  loadins. .  Itl 

3    A  car  may  be  held  for  unloading.    t  ^P 

if)  g^lfCSefenrr-^  '""^  »-«-■  ■'■■■l»<>  days 

(6)  m  miles  at  10  miles  per  hour: ..::::.:::.::  Zs" 

Since  the  average  car  trip  takes  up  10.,  days.'«S:s 

onlv  ttv  """^•l"*^''  f"---    If  a  ease  is' taken  where 
only  the  free  fme  .s  used  then  there  are  5.192  days  to 


I'RACTICAL   PHASES    OF   RAILWAY   BUSINESS    489 


account  for.  It  should  be  pointed  out  that  as  tlie  ear 
service  details  for  the  section  west  of  the  lakes  are  not 
])ul)lished  there  may  be  a  factor  of  error  in  taking  as 
applicable  in  the  west  th(  results  worked  out  in  the  east. 

110.  A  matter  of  controver.vf. — Around  the  question 
of  this  detention  much  controversy  wages.  In  an  ex- 
hibit submitted  by  the  western  branch  of  the  Canadian 
Freight  Association  to  the  board,  in  a  case  pending  be- 
fore it,  details  are  given  for  the  period  July  1  to  De- 
cember 15,  1912,  for  western  lines  covering  9,289  cars 
held  in  excess  of  five  days  over  free  time,  on  which  there 
were  106,034  days'  detention.  A  detention  of  as  high 
as  152  days  is  noted  in  one  case.  The  total  number  of 
(lays'  detention  is  equal  to  10,600  additional  freight  car 
trips  which  might  have  been  performed  in  the  period 
covered.  If  ♦ihere  is  further  taken  into  consideration 
the  five  days  over  free  time  which  is  excluded  from  this 
exhibit,  the  total  number  of  days'  detention  would  be 
e<iuivalent  to  15,200  additional  car  trips;  this  is  equiva- 
lent to  an  addition  of  10  per  cent  to  the  car  supply.  On 
the  other  hand,  shippers  furnish  many  examples  of  de- 
lays in  transit.  Between  Hawkesbury  and  Hull,  a  dis- 
tance of  88  miles,  9  days  were  taken  in  transit,  and  be- 
tween Hawkesbury  and  Toronto,  a  distance  of  348 
miles,  15  days.  The  average  time  of  transit  on  65  cars 
between  Alberta  points  and  the  heaa  of  the  Lakes  was 
56  days.  Complaints  are  also  made  by  the  shippers  of 
delays  in  placing  cars,  as  well  as  of  delays  in  moving 
cars  under  load,  examples  of  two,  three  and  more  days' 
delay  in  lifting  car  after  it  is  loaded  being  given. 

Various  suggestions  are  made  by  the  railways  as  to 
the  method  of  meeting  this  difficulty.  In  a  recent  cir- 
cular issued  by  the  Car  Service  Department  of  the 
Grand  Trunk   the   following   suggestions   are  made: 


490 


TRAFFIC 


heavier  loading,  prompt  unloading,  loading  commodities 
at  other  than  rush  periods,  shippers  supplying  them- 
selves  with  adequate  warehousing  facilities.  This  com- 
pany has  also  circularized  its  employees  instructing  the. 
to  encourage  the  shippers  to  load  and  unload  promptly 
and  to  capacity.  It  pertinently  admonishes  its  em- 
ployees, "Remember,  standing  cars  earn  no  money- 
keep  them  moving."  ^ 

In  the  figures  of  western  lines  already  referred  to 
analysis  points  to  delays  in  terminals  as  an  important 
factor.    The  figures  of  the  Canadian  Pacific  cover  338 
stations      The  following  points,  Calgary,  Edmonton. 
Lethbridge.  Moose  Jaw,  Medicine  Hat,  Port  Arthur 
Regina,   Saskatoon,   Swift    Current,    Vancouver,   and 
Wmnipeg,  were  responsible  for  60  per  cent  of  the  car 
detention  and  50  per  cent  of  the  car-day  detention.    The 
figures  of  the  California  demurrage  bureau  show  that 
ii&n  Francisco,  Oakland,  and  Los  Angeles  with  24  59 
per  cent  of  the  cars  handled  had  36.25  per  cent  of  the 
cars  held  over  time  and  yielded  34.23  per  cent  of  the 
demurrage  charges.     While  the  railways  contend  that 
they  have  increased  their  terminal  facilities  in  excess  of 
the  unloading  facilities  of  the  consignees,  the  admoni- 
tion of  the  Grand  Trunk  to  its  yardmasters  and  yard- 
men IS  pertinent:  expedite  movement  "by  realizing  that 
a  yard  ,s  a  place  to  get  cars  out  of,  not  a  place  to  get 
cars  mto.     Delays  in  transit  may,  in  the  case  of  a  single 
track  road   be  due  to  inadequate  side  track  accommo- 
dation.   If  the  terminals  of  such  a  road  are  congested 
the  cars  block  up  back  on  the  line. 

111.  Higher  demurrage  charges.—UTging  that  the 
present  charge  is  not  a  sufficient  deterrent,  the  railways 
point  to  the  fact  that  the  value  of  the  car  to  the  railway 
has  increased.    When  the  dollar  rate  was  first  struck  in 


PRACTICAL   PHASES    OF   RAILWAY   BUSINESS    491 

the  United  States  in  1872  the  normal  car  held  fifteen 
tons  and  had  ?in  average  load  of  about  six  tons.  Now 
there  are  30-ton  cars  with  an  average  load  of  eighteen 
tons.  They  point  out  that  in  Canada  the  average  daily- 
earnings  of  a  freight  car  are  $2.52,  and  that  the  demur- 
rage charge  should  be  commensurate.  The  shippers  re- 
join that,  deducting  operating  expenses,  a  car  nets  about 
$1.05  a  day. 

In  November,  1912,  application  was  made  to  the 
hoard  for  a  temporary  increase  in  demurrage  charges. 
It  was  represented  that  a  car  shortage  was  impending, 
and  that  an  increased  charge,  by  stimulating  the  load- 
ing and  unloading  of  cars,  would  increase  the  available 
supply  of  cars.  Reference  was  made  to  the  fact  that  to 
meet  a  similar  situation  the  Temiskaming  and  Northern 
Ontario  had  for  a  short  time  enforced  a  $3.00  rate.  An 
order   was    issued    permitting   between   December   5, 

1912,  and  April  1,  1913,  an  increase  of  the  rate  to 
$2.00  for  the  first  day  over  the  free  time  and  $8.00  for 
each  succeeding  day  thereafter. 

The  following  statement  presents  a  comparison  of  the 
January-March  period  of  1912  with  the  same  period  for 

1913,  the  former  being  under  the  $1.00  rate,  the  latter 
under  the  increased  rate: 


Tdal  No. 
of  Cars 

Total  Cars 
Detained 

Percent 

of  Cars 

Released  in 

Free  Time 

Aver. 

Detention 

Days 

CoWnper 

Car 
Detained 

Period 

Ry- 

Consigns 

Total 

Jan.-Mch.,1912. 
Jan.-Mch..l913. 

351,193 
401,481 

18,157 
17,345 

95% 
96% 

.45 
.62 

1.89 
1.88 

2.34 
2.40 

$  4.27 
10.70 

In  California,  as  a  result  of  the  congestion  of  the  San 
Francisco  and  Oakland  terminals  after  the  earthquake, 
high  demurrage  rates  were  adopted.    These  became 


492 


TRAFFIC 


fc-eneral,  and  so  between  July,  1909,  and  April,  1911 
there  was  a  rate  of  $6.00  per  day  on  the  intrastate  traffic' 
while  on  interstate  traffic  the  rate  was  $1.00.    In  March' 
1911,  98.12  per  cent  of  the  cars  in  state  traffic  were  re- 
leased in  the  free  time,  while  on  interstate  traffic  the  per- 
centage  was  94.79  per  cent.    The  excess  over  free  time 
on  the  state  rate  was  1  day,  while  on  the  interstate  traffic 
It  was  2.15  days.    In  May,  1911,  a  $3.00  rate  went  into 
force  on  the  state  traffic.     The  same  rate  was  adopted 
on  interstate  traffic  in  February,  1913.     In  August, 
1913,  the  percentage  released  in  free  time  on  state  traffic 
was  98.12  per  cent,  while  on  interstate  traffic  it  was 
f  per  cent.    A  considerable  part  of  the  difference 
^s  due  to  the  fact  that  on  the  state  movement  the  oriffi- 

Further,  m  Califorma  a  great  part  of  the  movement  is 
concerned  with  one-line  hauls  on  which  the  originating 
.arrier  has  control  throughout.  On  the  interstate  move 
ment  there  are  delays  in  connection  with  "order"  ship- 
ments, delivery  of  coal  direct  from  track  to  the  con- 
sumer,  contractors'  supplies  shipped  in  advance  of  actual 
(iemand  therefor. 

The  Pacific  Car  Demurrage  Bureau  in  its  brief  be- 
fore  the   Interstate    Commerce    Commission   in   1912 

SarFrlncis'^o"^^'''  ""^  *^^  ^^^^  ^"^^^  Company  of 

190^'  '^^  f  ""^g-^  rate  of  $6  per  car  went  into  effect  in 
909,  and  later  reduced  to  $3,  reasonable  terms  of  loading  and 
d  scharg^ng  bemg  allowed,  we  have  had  a  fairly  abundant  sup- 
ply of  cars,  even  m  the  most  restricted  season  of  the  year  when 
the  crops  were  moving,  and  to  my  mind  the  demurrage  charge 
of  $6  per  day,  after  reasonable  time  allowed  for  loading  or  dt 
chnrgmg  would  be  more  advantageous  to  the  shipper  than  a 
lower  rate,  because  of  the  fact  that  it  would  kee^equ  pment 


PRACTICAL   PHASES    OF   RAILWAY    BUSINESS    493 

from  being  used   for  storage  purposes   and  keep  it  free  for 
ti-iuisportation  purposes. 

112.  Average  demurrage. — While  the  railways  have 
made  suggestions,  as  indicated,  for  the  improvement  of 
the  demurrage  situation,  the  shippers  have  from  time 
to  time  made  recommendations  that  either  average  de- 
murrage or  reciprocal  demurrage  should  be  adopted. 

Under  the  national  demurrage  iiiles  of  the  United 
States  it  is  provided  that  when  the  shipper  so  elects  and 
gives  proper  assurance  to  the  railway  for  prompt  pay- 
ment the  demurrage  charges  may  be  settled  on  a  monthly 
balance  of  debits  and  credits  worked  out  as  follows:  a 
credit  of  one  day  at  a  rate  of  $1.00  per  day  is  given  for 
each  car  released  within  the  first  twenty-four  hours  of 
free  time;  a  debit  of  one  day  is  charged  for  each  car 
held  for  each  day  or  portion  thereof  that  the  car  is  held 
l)eyond  free  time.  In  no  case  is  a  credit  of  more  than 
one  day  allowed  on  any  one  car,  nor  may  more  than  five 
(lays'  credit  be  aUowed  in  cancellation  of  debits  accruing 
on  any  one  car.  If  there  is  an  excess  of  credits,  no  pay- 
ment is  made  therefor.  The  credits  of  one  month  do  not 
apply  on  a  subsequent  month.  When  a  shipper  elects 
the  average  system  he  has  not  the  advantage  of  the 
allowances  in  respect  of  weather  conditions  pnd  "bunch- 
ing" which  are  available  to  those  using  the  straight  de- 
murrage rules. 

Those  who  argue  for  an  average  arrangement  treat 
the  free  time  allowance  per  car  as  a  matter  of  right 
which  each  shipper  is  entitled  to.  A  representative  of 
the  Canadian  branch  of  the  International  Harvester 
Company  testified  that  the  company's  yard  tracks  could 
be  worked  more  efficiently  under  the  average  system. 
Instead  of  the  extra  switching  necessary  in  order  to  get 


4M 


TRAFFIC 


out  a  car  in  the  order  of  date  and  thus  save  demurraRe 
the  car  could  be  used  regardless  of  date  of  arrival 

m  a  summary  way  the  arguments  advanced  for  aver- 
age demurrage  are:   it  means  the  more  rapid  placing 
of  cars  for  l™.d,„g  or  unloading,  thus  effecting  a  sav  "g 
on  the  cost  of  handling  by  the  railways;   cafs  will  Z 
empfed  faster  and  will  be  placed  at  the  disposal  oth^ 
earner  earher.  and  not  only  the  receiver  wL  takes  an 
mterest  ,n  releasing  his  cars,  but  every  shipper,  wS  t 
benehted:  .t  will  remove  the  friction'which  frequlnt^ 
anses  betwen  the  carriers  and  the  receivers  in  respe^rof 
weather  mterferen«  and  bunching  in  transit.    The  raH 
ways  contend  that  the  maximum  free  time  is  intenXd 
s.mply  to  g,ve  a  maximum  reasonable  time  to  cover  n^ 
™ly  th,«e  who  have  g„«l  unloading  facilities.  buTako 
those  who  have  poorer  facilities,  and  that  th;  sh  p~r 
should  use  only  so  much  time  as  is  necessary.    I„  del- 
ing w.th  the  relation  of  detention  to  car  sh^orto^s  fte 
Georgia  Radroad  Commission  said  in  1912: 

cars,  th«  docs  not  necessarily  mean  that  il  ought  to  be  con- 
sumed ,„  every  i„st.„oe  and  regardless  of  other  con^^deraUon 
or  crcumslanees.  Cars  should  be  loaded  and  nnloadS  .^ 
pro„,p,ly  as  possible  after  being  placed.  It  is  notfalr  to  th 
carr-ers  or  other  shippers  to  hold  them  for  48  hours'Tu  t  ^ 
cause  one  has  that  much  free  time  bv  law    w)..„  ,1  .j 

just  as  well  be  handled  in  6  or  ,2  hou^.  '^  '=°"''' 

of  R^Iwrror"'"'  ^^""^  '^  ^''*™'''  Association 
SO  19  3  Mr  T  T'V^*  Washington  on  October 
30,  1918  Mr.  James  O.  Klapp,  the  manager  of  the 
Wisconsm  Demurrage  Bureau,  said: 

A^  a  concrete  example  of  the  working  of  this  n.le,  we  call 
.vour  „„ent.on  to  the  comparative  results  of  two  la;gr  fi™! 


I'HACTK'AL    PHASKS    OF    RAILWAY    BUSINESS    495 


ill  the  City  of  Milwaukee,  who  are  now  working  under  the  aver- 
iicrc  ugrccment. 

Average  Delay 

Number  Days  Per  Car 

of  Cars  Delayed  Per  Day 

rndor  straight  demurrage  1        2962  2339  0.79 

Mamh  and  April,  1910..  .  | 

I'nd  r  average  agreement  1        3796  5525  1.46 

March  and  April,  1912. .  .  j 

Delay  under  the  average  agreement  exceeds  delay  under  the 
straight  demurrage  rules  0.67  days  per  car  per  day — actual 
loss  in  efficiency  S,543  car  days  for  the  two  months. 

113.  Reciprocal  demurrage. — Under  the  Railway 
Act  the  board  is  specifically  given  power  to  deal  with 
reciprocal  demurrage.  Under  reciprocal  demurrage 
the  railways  are  penalized  in  the  same  way  as  the  ship- 
j)ers.  The  penalty  may  be  for  delay  in  supplying  a  car 
or  for  delay  of  the  car  in  transit,  or  both.  There  are 
before  the  board  for  determination  two  sets  of  applica- 
tions dealing  with  this  matter.  One  desires  that  the  rail- 
ways should  be  required,  under  penalty,  to  place  cars 
for  loading  within  forty-eight  hours  after  they  are  or- 
dered; to  lift  the  cars  within  twenty-four  hours  after 
notification  of  loading;  and  to  place  cars  for  delivery 
at  destination  within  forty-eight  hours  after  arrival.  The 
second  application  desires  that,  in  addition  to  these  con- 
ditions, the  railway  should  also  be  penalized  if  it  does  not 
transport  each  loaded  car  a  distance  of  100  miles  per 
day,  twenty-four  hours  additional  being  allowed  to  com- 
plete transfer  from  one  line  to  another  where  necessary. 

The  argument  for  reciprocal  demurrage  from  the 
standpoint  of  its  analogy  to  the  ordinary  demurrage 
charge  has  been  very  well  put  by  Mr.  J.  E.  Walsh, 
Traffic  Manager  of  the  Canadian  Manufacturers'  Asso- 
ciation: 


490 


TRAFFIC 


If  .t  .8  f«,r  (and  wc  «ay  that  under  ordinary  .•ircumstancc. 
It  .8  fa.r)  and  m  the  public  interest  that  a  charge  should  be 
made  when  freight  car.  are  detained  in  loa.ling  and  unloading 
in  order  that  they  may  bo  kept  available  for  service,  it  is  rea- 
8onable  to  expect  that  the  railways  should  be  subject  to  a 
s.m.lar  penalty  when  they  delay  cars,  entailing  serious  loss 
to  the  public. 

The  shippers  ask  for  reciprocal  demurrage,  not  from 
a  desire  to  collect  the  penalty,  hut  to  insure  car  supply 
The  advantages  claimed  for  it  are  threefold:  that  it  will 
expedite  sui)plying  cars,  movement  in  transit,  and  de- 
livery after  arrival. 

The  railways  say  in  substance:  it  is  not  demurrage 
and  ,t  IS  not  reciprocal.  They  say  that  delays  may  be 
attributable  to  lack  of  care  in  ordering  cars.  For  ex- 
ample,  at  a  grain  shipping  point  46  applicants  may  book 
orders  for  cars  to  be  placed  on  one  day  at  a  grain  eleva- 

iZa  f       ^  r^l  "^"^**°^  '*  '"  «  g"«d  day's  work  to 

oad  four  cars  Therefore,  penalties  would  accrue,  when 
If  orders  had  been  spread  out  no  such  penalties  would 
have  accrued.  It  is  contended  that  in  times  of  specially 
active  car  movement  it  would  be  unreasonable  to  require 
under  penalty,  a  supply  of  cars  in  forty-eight  hours.' 
T.,e  delays  are  attributed,  in  great  part,  to  the  insuffi- 
cient warehousmg  facilities  of  shippers  who  find  it 
cheaper  to  hold  goods  in  cars  at  a  penalty  of  $1.00  per 
day  than  to  supply  warehouses. 

The  board  has  found  that  a  shortage  of  cars  in  one 
ielf  n^  7  f^  T  ^"'  '"^  '^'  ^^^^^  ""'"ber  of  cars 

ofiT^^  ^  '."  *5'  *''"^'"'*^^-  ^^»^^"  *h-  attention 
of  the  local  Board  of  Trade  was  drawn  to  this  it  took 
steps  to  induce  quick  unloading. 

fo7!?b  "f^'^^^s  urge  that  while  allowance  is  proposed 
for  the  time  taken  m  transferring  from  one  li^  to 


|'HA(TICAL   PHASKS    OF    RAILWAY    BUSINESS    497 

another,  equally  great  allowance,-  if  not  greater,  should 
l»c  made  for  i)assing  through  terminals  where  the  hreak- 
in^  up  of  trains  and  reclassifying  of  cars  necessitates 
(Itlays.  It  is  claimed  that  there  is  no  reciprocity  as  be- 
tween a  penalty  charge  on  a  car  which  the  railway  owns 
and  a  penalty  on  a  car  which  the  shipper  hires.  It  is 
further  contended  that  reciprocal  demurrage  would,  by 
collusive  arrangements,  open  up  the  way  for  rebating, 
since  it  would  be  possible  to  allow  a  favored  shipper  to 
iiave  cars  while  it  was  known  that  the  terms  on  which 
tliey  were  ordered  under  the  reciprocal  demurrage  could 
not  be  lived  up  to.  In  respect  of  mileage  requirements 
the  railways  quote  the  following  average  movements 
during  the  grain  shipping  season  at  the  end  of  1911 : 

Sejrf.  Oct.  Nov.  Dec. 

Great  Northern 27.7  31  24.8  20.2 

Northern  Pacific 24.4  27.2  24.1  20.1 

Grand  Trunk  Pacific 25.4  25.6  25.5  26.9 

Canadian  Pacific  (Western  Lines).  33.97  35.51  28.38  26.04 

and  they  contend  that  the  requirement  of  a  defined 
mileage  per  day,  irrespective  of  climatic  and  other  con- 
ditions over  which  they  have  no  control,  would  be  unfair 
and  unworkable. 

114.  Raihvay  interrelations  and  per  diem  charge. — 
The  large  development  of  through  business  leads  to  cars 
under  load  going  to  foreign  lines.  The  American  Rail- 
way Association  has  a  code  of  Car  Service  Rules  and 
per  diem  charges.  The  leading  Canadian  roads  are 
members  of  this  association.  The  essential  rules  cover- 
ing the  homeward  movement  of  foreign  cars,  i.  e.,  cars 
of  another  line,  are  that  foreign  cars  must  be  promptly 
returned  to  their  owners  loaded  (via  any  route)  so  that 
the  home  road  will  participate  in  the  freight  rate;  or 
loaded  to  the  road  from  which  originally  received,  if 

C— III— 38 


406 


THAFFIC 


' 


siirh  loading  is  in  the  direction  of  the  home  road,  but  not 
otherwise;  or  loaded  to  an  intermediate  road  in  the 
direction  of  the  home  road;  or  loaded  in  local  service 
in  the  direction  of  any  junction  point  with  the  home 
road.  There  is  a  per  diem  charge  in  the  case  of  foreign 
cars.  This  charge,  which  has  varied  from  time  to  time, 
is  at  present  45  cents  per  day.  This  charge  is  not 
analogous  to  the  demurrage  charge,  for  in  addition  to 
the  per  diem  the  home  road  participates  in  the  rate  when 
the  car  has  moved  off  its  own  lines  under  a  through  rate 
or  moves  on  to  its  own  lines  under  a  through  rate. 

The  box  car  has  been  called  a  "legal  tender"  car  since 
it  is  a  car  of  general  and  interchangeable  service  of  any 
line.    It  would  seem  justifiable,  with  a  view  to  prevent- 
ing car  shortage,  to  equalize  car  equipment  through  a 
car  pool.    At  present,  the  road  which  is  short  of  equip- 
ment  may,  notwithstanding   the  rules,   steal  foreign 
equipment  that  happens  to  be  on  its  lines,  it  being 
cheaper  to  pay  per  diem  than  own  cars.    As  a  further 
development  of  this,  by  means  of  building  a  standard 
box  car,  although  such  cars  are  not  far  apart  in  stand- 
ards to-day,  the  building  of  cars  in  quantity  would  enable 
them  to  be  turned  out  at  a  lower  price.    The  Car  Service 
Commission  of  the  American  Railway  Association,  in 
a  report  published  early  in  1913,  estimated  that  this 
saving  would  be  $65.00  per  car— 6i  per  cent  of  the 
present  cost.    In  the  words  of  that  commission- 
To  be  just  to  the  railways  themselves  and  to  the  public 
generally,  this  pool  should  be  regulated  to  the  end  that  there 
shall  be  secured  to  every  road  the  use,  when  it  needs  them,  of 
its  quota  of  "legal  tender"  equipment,  whether  its  own  or  the 
equivalent  in  foreign  cars,  or,  in  the  alternative  compensation 
in  money  for  the  diflference.     Such  regulation   can  be  made 
effective  only  by  the  abandonment  of  the  right  to  physical 


l'HA(TI(  AL    PIIASKS    OF    UAIIAVAV    III  SINKSS    499 

ivhiiri  f(»  the  owiur  of  itn  own  ciirH,  niui  l|u>  NiiliHtitution  of 
lli«  ri^lit  to  poMHt'sMion  and  uni-  hy  vnvU  lint"  of  "logiil  teiMlcr" 
(lis  ill  kind  equivalent  to  the  tars  hy  it  owned  and  co-*ribiitcd 
lo  the  pool.  The  ohJerti<»ns  to  recognizinjf  a  box-ear  pool 
ill  the  past  have  rosteil  largely  qn  the  desire  of  roads  which 
line  supplied  their  (|Uota  of  "legal  tender"  equipment  and 
liiivc  maintained  them  on  high  standards,  to  be  assured  of  the 
use  of  cars  measuring  up  to  their  standards.  The  answer  is 
th.it  in  practice  existing  car  service  rules  have  not  secured 
Hiis  result  so  far  as  l)ox-cars  arc  concerned. 

Tlie  enforcement  of  the  rule.s  as  to  the  prompt  return 
of*  ears  is  in  the  hands  of  a  commission  of  the  American 
Hallway  Association,  which  has  power,  after  investi- 
^nition,  to  assess,  in  addition  to  the  per  diem,  a  money 
fine  with  a  minimum  of  $2.00  for  each  violation  of  the 
rules. 

The  Canadian  railways  have  two  general  associa- 
tions— the  Canadian  Freight  Association  and  the  Cana- 
dian Passenger  Association.  These  deal  with  matters 
of  general  concern;  for  example,  in  the  case  of  the 
Passenger  Association,  excursion  rates  and  baggage 
rules;  in  the  case  of  the  Freight  Association,  classifica- 
tion, general  switching  tariffs,  and  tariffs  of  general 
scope. 

115.  Intermcitching. — Two  or  more  lines  may  par- 
ticipate in  a  relatively  long  haul.  The  occasion  may  also 
arise  where  while  two  or  more  roads  enter  one  city,  the 
point  which  the  shipper,  over  the  railway  which  has  the 
line  haul,  desires  to  reach  is  situated  in  the  terminals  of 
another  railway  or  in  a  section  adjacent  thereto  and 
served  by  it.  The  board  has  power  to  provide  for  a 
physical  connection  between  such  railways  so  as  to  afford 
interswitching  facilities.  To  provide  a  tariff  basis  for 
such  services,  which  were  recognized  as  distinct  from  the 


500 


TRAFFIC 


liH; 


line  haul,  the  hoard  issued  in  1908  an  order,  the  pro- 
visions of  which  J) resented  analytically  are  as  follows: 

Traffic  destined  to  consignees  : 

(a)  Upon  or  )  tracks  of  contract- 

(b)  Reasonably  adjacent  to  j      ing carriers;  or 

(c)  Customarily  accepting  contracting  company's 

delivery;  or 

(d)  Not  clearly  indicating  delivery  required. 

In  such  cases  where  there  is  a  subsequent  application 
for  interswitch  delivery  involving  additional  ser\'ice  by 
another  carrier,  the  contracting  carrier  may  collect  an 
interswitching  toll  of  such  other  carrier  not  exceeding 
20  cents  per  ton  for  a  distance  up  to  four  miles,  with  a 
minimum  of  $3.00  and  a  maximum  of  $8.00  per  car. 

Traffic  destined  to  consignees  : 

(a)  Upon  or  ]  ^^^^'^^    °**^^''    *^»" 

(b)  Reasonably  adjacent  to  f    *^°'^.  °^  *^^  ^°"- 

J     tractmg  carrier;  or 

(c)  Customarily  requiring  such  other  carrier's  de- 

livery. 
In  such  cases  the  contracting  carrier  may,  for  such  inter- 
switch delivery,  charge  not  exceeding  10  cents  per  ton 
for  a  distance  up  to  four  miles,  with  a  minimum  of  $1.50 
per  car  and  a  maximum  of  $4.00  per  car.  Such  other 
carrier  performing  the  service  may  charge  not  more 
than  20  cents  per  ton  up  to  the  four-mile  distance,  with 
a  minimum  of  $3.00  per  car  and  a  maximum  of  $8.00 
per  car.  The  contracting  carrier  is  not  required  to  re- 
duce its  revenue  below  $8.00  per  car.  It  will  be  noted 
that,  subject  to  the  limitation  contained  in  the  preceding 
sentence,  the  effect  of  this  arrangement  is  to  require  the 
contracting  carrier  to  absorb  one-half  the  interswitch 
charge. 


PRACTICAL   PHASES    OF   RAILWAY   BUSINESS   501 


It  has  been  decided  that  this  requires  the  railway  to 
which  the  car  is  interswitched  to  receive  the  car  on  its 
private  tracks  or  industrial  sidings,  but  not  to  afford  the 
service  of  placing  such  car  on  its  team  tracks. 

The  matter  of  local  switching,  as  distinguished  from 
interswitching,  which  may  involve  the  service  of  two  or 
more  carriers  in  a  purely  terminal  movement,  is  before 
tlie  board  for  consideration.  The  railways  object 
strongly  to  such  a  movement,  which,  while  of  conven- 
ience to  the  shipper,  is  an  expensive  one,  since  being 
through  the  terminals  it  may  place  obstacles  in  the  way 
of  the  through  movement. 

116.  The  work  of  the  claims  department. — Claims 
may  arise  from  train  collisions  and  derailments,  break- 
age, pilferage,  leakage,  soakage,  weather  conditions, 
non-delivery  or  delayed  delivery,  overcharges  due  to 
erroneous  rate  quotations,  misclassification,  errors  in 
way-billing,  weighing.  There  are  also  claims  arising 
from  accidents  to  passengers  and  claims  for  cattle  killed 
on  the  tracks.  These  are  simply  mentioned  here.  The 
Canadian  Pacific  deals  with  about  55,000  claims  a  year, 
the  Grand  Trunk  with  about  58,000. 

There  iz  probably  no  department  of  the  railway 
service  which  has  a  greater  opportunity  to  create  fric- 
tion, or  a  better  opportunity  through  the  exercise  of  tact 
to  prevent  friction.  Shippers  constantly  complain  that 
there  are  undue  and  unreasonable  delays  in  connection 
Avith  the  settlement  of  claims.  The  railways  respond 
that  while  they  use  every  endeavor  to  settle  claims,  there 
are  of  necessity  delays  in  settlement.  While  many 
claims  are  made  in  good  faith,  there  are  others  that  are 
fraudulent;  and  so  all  must  be  tested. 

In  case  of  claims  arising  in  connection  with  move- 
ments local  to  the  line,  the  matter  should  be  promptly 


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504 


TRAFFIC 


vy 


mav  take  dW     it  J     k    '  '"^^  "^^  «"^^  delays 

Slot    'eh l^fy^'-^^-f  other  lines  a„/the 

of  the   railt;f  La     as'fuU^'      1-  **'  "«"'''"'™ 
should  be  give^  „„  tt  ^J^l '" S"™""""  -.  P»»»Me 

tied  th'ei^r^    "^^.^---^  - 

™eSf  •       "  °"  ^■^'"•'  *^  '*-"g  -letails  ^ere 

Claims  received,  local igj, 

'"■^'Kn 14S3 

Adjustment  made  as  follows:  ^'^^ 

Local — 

16^1  adjusted  in  less  than    7  days 
9.3%  ««         «     ..        ..     I*     .. 

"1%         "         '«     "       "    lo     .. 

13.3%  took  over  3  months  to  adjust. 
.  Mean  average— 28  days. 

Foreign-refers  to  claims  on  joint  business: 
^9.3%  adjusted  in  less  than    7  days 

5.7%  «         »     ..        »    ^*     .. 

8  4%  «         ..     »        »    *1      .. 

37.3%  took  over  3  months  to  adjust. 
Mean  average— 37  days. 


CHAPTER   VIII 


EXPRESS    SERVICE 


117.  Express  service  and  its  scope. — Express  service 
is  an  expedited  freight  service  carried  on  passenger 
trains  under  the  personal  care  of  an  express  messenger. 
In  addition,  there  is  in  the  case  of  towns  and  cities  either 
a  delivery  or  a  pick-up  and  delivery  service.  While  it  is 
a  freight  service,  the  companies  performing  the  service 
do  not  own  the  means  of  transportation,  as  in  the  case  of 
ordinary  freight  carriers.  They  enter  into  contractual 
relations  with  the  railways  for  the  purchase  of  space  for 
the  carriage  of  goods.  While  the  railway  has  a  large 
investment  of  capital  in  a  fixed  form  in  roadbed  and  cars, 
the  express  company's  investment  is  concerned  for  the 
most  part  with  office  space,  horses,  wagons,  or  motor 
vehicles  for  performing  pick-up  and  delivery  service. 

The  express  service  covers  not  only  the  carriage  of 
high-grade  parcel  freight,  but  also  many  articles  of  food 
and  drink.  Not  only  are  packages  carried;  provision 
is  also  made  for  the  movement  of  horses  in  carloads  as 
well  as  for  a  refrigerator  car  service  in  the  case  of  fish 
and  fruit.  Provision  is  made  for  the  shipment  of  cur- 
rency, bullion,  gold  and  silver  coin,  precious  stones,  valu- 
able papers  and  securities.  A  banking  business  is  done 
through  the  issuance  of  money  orders.  The  returns  from 
C.  O.  D.  shipments  are  also  collected  a^d  returned  to 
the  consignor. 

The  movement  is  not  limited  to  one  country  alone, 
foreign  shipments  also  being  handled.    In  addition,  vari- 

505 


sot 


TRAFFIC 


ous  other  services  are  rendered.    The  wide  scope  of  these 
>s  set  out  ■„  the  following  extract  from  a  special  report 
made  by  the  Interstate  Conunerce  Commission  in  1909- 
Commclitie,  of  all  kind,  .re  bought  .„<!  transported  „„' 
ordc„  and  arc  I,l<owi.e  transported  and  sold  on  oriers.     T 
ere  for  and  extend  this  branch  of  the  business  propcrlv.  th 
vanous  co„pa„.os  n,ai„,ain  „,..er  and  co^ission  dep' rtLl. 
•  .  .  Express  business  i,  carried  on  through  order  and  com- 
™.«.on  departments  in  four  different  waysfviz..  (1)  a  paZ 

him  Zr        '"^^''  "■=  "'""""'y''  "S™'  -d  transported  I. 
h.m  for  express  charges;  (2)  a  patron  may  dehVer  any  com- 

pany.  to  bo  transported  to  a  certain  buyer  and  the  agreed 
..le  pr,ce  collected  and  lra„»mi.te.l  ,„  the  shipper  for  eXs. 
and  money  order  charges;  (3)  a  patron  may  Seliver  anlTr 
"."d.ty  subject  to  express  shipment,  to  an  a^nt  of  aZpZ 
who  ,  „  d,rtake  to  sell  it  through  other  express  ageTto 
the  best  advantage  on  shippers'  account  and  transit  the 
proceeds  for  express  and  money  order  charges;  (4)7lr„: 
may  request  an  express  agent  to  perform  an^  .;aso„able  com 
Z"'  ",'^.  "'  ™""""«  •°"'"  "''-ng  papers  for  recordT 

wilTenlTT,"""""' ''•^ ''"'""«  """  *«  «P«»  agent 
will  enter  and  clear  articles  at  custom  houses  transport 
goods  m  bond,  exchange  foreign  money,  re^^m  paXd 
articles,  pay  gas  bills,  and  "in  short  wil  alTe^dTrnv 
legmmate  business  transaction  as  the  customer^  agent?' 

ear  y  days  of  railway  travel  in  the  United  States  espe^ 

«ie  case  of  food  supplies  a  spasmodic  traffic  of  conven- 

IfHend  inT^tr^  "  'T"  '"  ""^  '"^  -""W  ""^  *» 
«  friend  in  another  a  package,  basket,  or  bmidle  which 


EXPRESS    SERVICE 


507 


some  passenger  would  undertake  to  look  after  on  the 
way;  or  sometimes  the  conductor  or  baggageman  would 
undertake  the  service  for  a  consideration.  Under  such 
conditions,  all  the  risks  of  loss  through  lack  of  care,  as 
well  as  all  the  risks  incidental  to  transportation,  had  to 
be  borne  by  the  shipper. 

In  1839,  the  modem  express  service  began  in  the  ven- 
ture of  William  Hemdon,  who  undertook  to  carry  pack- 
ages between  New  York  and  Boston  at  fixed  rates.  He 
issued  receipts  for  the  packages  and  assumed  the  risks 
in  connection  with  their  safe  transmission.  At  first,  he 
constituted  the  whole  service,  traveling  to  and  fro,  carry- 
ing the  packages  in  a  couple  of  valises.  As  his  business 
expanded,  messengers  were  employed,  who  also  traveled 
in  the  passenger  cars.  It  was  not  until  the  late  forties 
that  an  exclusive  car  for  express  service  was  put  into 
operation. 

The  express  service,  therefore,  arose  out  of  Hemdon's 
appreciation  of  a  public  need  at  a  time  when  the  railways 
considered  that  the  only  branches  of  business  with  which 
they  were  concerned  were  freight  and  passenger. 

In  1855,  the  American  Railroad  Journal  strongly 
urged  that  the  express  business  should  be  done  by  the 
railway  without  the  use  of  any  intermediary.  There  were 
still,  however,  difficulties  in  the  way  of  through  lines  of 
traffic,  although  the  consolidation  of  the  various  small 
lines  was  already  under  way.  The  American  Express 
Company  was  founded  in  1850  as  a  result  of  the  con- 
solidation of  two  private  companies.  In  1854,  Hern- 
don's  Company  and  three  others  were  consolidated  into 
the  Adams  Express  Company.  In  the  same  year  the 
United  States  Express  Company  was  organized.  The 
discovery  of  gold  in  California  in  1849  led  to  the  creation 
of  various  pony  express  companies.    The  companies  so 


508 


TRAFFIC 


thfw'n  r'  "°"«°^'^^*^d  '^^  18«6  under  the  name  of 
the  We  Is  Fargo  Company.  In  general,  it  may  be  said 
that  ,n  the  United  States  the  handling  of  express  busi- 
ness  by  express  companies  was  well  established  at  the 
outbreak  of  the  Civil  War. 

U9   Exprcffs  companies  in  Canada.-In  the  United 
Mates  the  express  companies  grew  up  independently  of 
the  railways.    They  have  in  later  years  come  into  very 
close  relationship  with  them.    In  various  cases  the  hold- 
mgs  of  stock  m  express  companies  by  particular  railway 
groups  give  the  interests  controlling  these  practical  con- 
trol  of  the  express  companies  as  well.    In  Canada,  from 
the  outset  the  expres   companies  have  been  the  creations 
ot  the  railway  companies. 
There  are  operating  in  Canada  to-day  various  Amer- 

Zrtr.r  wTT''""^"*'"""*'  ^^"'*^d  States.  Great 
Northern,  Wells  Fargo,  and  American.    The  Canadian 

iJ^fr^^'*'?  ^""P'"''  Company  was  organized  in 
f  1  7^ol\"'''"'"/^  '*P'*^^  ^^  ^^^'^^0,  subscribed  capi- 
tal  of  $275  200,  of  which  10  per  cent  was  paid  in.  The 
capital  stock  of  the  company  was  purchased  in  1891  by 
the  Grand  Trunk  for  $660,000  in  cash.  The  stock  of 
the  company  is  held  in  trust  for  the  Grand  Trunk  Rail- 
way  by  a  body  of  trustees  who  are  all  directors  of  the 
Grand  Trunk 

i«r^  ^°"^n'°n  Express  Company  was  incorporated  in 
1882  with  a  capital  of  $1,000,000.    When  the  company 
began  business,  10  per  cent  of  this  had  been  paid  up 
The  stock  of  the  company  is  held  in  trust  by  its  directors 
for  the  Canadian  Pacific.  *  "irecrors 

The  Canadian  Northern  Express  Company  was  or- 
gamzed  m  1902  with  a  nominal  capital  of  $1,000,000; 


EXPRESS    SERVICE 


509 


$300,000  of  this  was  issued;  $5,000  was  paid  in  cash;  of 
the  balance,  five  shares  went  to  qualify  certain  sharehold- 
ers, while  the  i-emainder  went  to  MacKenzie  and  Mann, 
wlio  thus  through  stock  ownership  control  the  company. 

120.  Arrangements  laith  railxtai/a. — The  express  com- 
pany pays  the  railway  over  whose  lines  it  operates  an 
agreed  percentage  of  the  gross  earnings.  For  example, 
the  Canadian  Express  Company  pays  the  Grand  Trunk 
50  per  cent.  The  balance  of  the  earnings,  after  the  de- 
(hiction  of  operating  charges,  go,  on  account  of  the 
fiduciary  relationship  of  the  express  company  to  the  rail- 
way, to  the  Grand  Trunk. 

The  operation  of  an  express  company  is  not  limited 
to  the  lines  of  the  railway  which  controls  it.  The  smaller 
railways  have  no  separate  express  company  service  of 
their  own,  and  enter  into  relationships  with  one  or  other 
of  the  express  companies  already  referred  to.  For  ex- 
ample, the  Canadian  Express  Company  has  contractual 
relationships  with  the  following:  Quebec,  Montreal,  and 
Southern;  Temiscouata;  Cumberland  Railway  and  Coal 
Company;  St.  Martin's;  Central  Railway  of  New 
Brunswick;  Windsor,  Essex,  and  Lake  Shore;  the  Inter- 
colonial and  other  railways.  The  Dominion  Express 
Company  also  operates  over  the  Intercolonial. 

The  Canadian  Express  Company  operates  over 
twenty  railways,  while  the  Dominion  operates  over 
thirty-two,  and  the  Canadian  Northern  over  seven. 

In  the  contracts  referred  to,  the  Canadian  Express 
Company  pays  the  railway  percentages  varying  from  40 
per  cent  to  50  per  cent  of  the  gross. 

The  express  company  operates  not  only  ordinary  ex- 
press cars,  but  also  refrigerator  cars  in  the  transport  of 
fish  and  fruit.  At  the  larger  points  it  maintains  its 
own  salaried  agents.    At  the  smaller  points,  the  railway 


510 


'RAFFK' 


station  aflrent  will  act  as  a  joint  a^ent  of  the  express 
company  and  of  the  railway.     He  is  paid  by  the  ex 
press  eompany;  in  the  ease  of  the  Canadian^xpr^^s 
Company,  I,y  a  commission  varying  from  21  per  rnt 

tic      Tn  Z^::^rr''i^  T'  ^^^ 
h.  ;«        I  ^'  Dommion  Express  Company 

The  express  business  in  Canada  is  primarily  concerned 
«-.tl.  a  movement  in  and  ont  „f  the  larger  cenTerr  it 
the  ease  of  tte  Dominion,  it  is  eslimatedlhatT*  ^  een" 

To^l!rdl^:"£  "^  '  "'^"^  "*  '^"' 

necessary  amendments,  be  adopted  to  suit  exp,^  s  t~r 

vent  th«.  The  great  difficulty  is  that,  in  cities,  exp^^s 
traffics  collected  in  krge  quantities  and  deliver^ 
as  trams  are  departing,  when  there  is  no  time  to  handk 
.t  under  a  class  fication  similar  to  that  of  fre.^ht 

The  express  classification  in  use  has  first  to  ^Main  the 
forma  sanction  of  the  board.    The  Railway  AcTstates 
hat  all  ,ts  provisions  "applicable  to  f«=ight1oUs  and 
freight  tanffs,  in  so  far  as  such  provisions  are  app  cable 
•  •  •  *''»"  «PP>y  to  express  tolls  and  tariffs  "  ^^^'^ 
In  express  classification,  commodities  are  classed  not 
m  groups,  ^  n  freight  traffic,  but  according  toThe  rate 
the  commodifes  take.    Express  shipments  are  Z>Z 
d.stmgu,shed    as    "freight-    and    "money."      S 
money  •  are  mcluded  not  only  shipment  of  actalf 
money,  but  also  of  bullion,  stocks,  bonds^  va  Jb°e  pa~^ 
and  various  articles  of  unusual  value.    "Freight"  sWn' 
ments    are    subclassed    as    "merchandise,"    "geneS 


EXPRESS   SERVICE 


511 


special"  or  Scale  N,  and  Scales  K,  M,  and  Section  D. 
There  are  also  special  scales  and  rules  covering  shipments 
of  "money."  "Merchandise"  rates  are  those  applying  on 
commodities  for  which  there  are  no  special  rates.  The 
"merchandise"  ratings  in  the  classification  may  also  be 
expressed  as  a  multiple  of  the  "merchandise"  rating. 
Articles  rot  shown  in  the  classification  and  not  analogous 
to  those  rated  higher  or  lower  than  "merchandise"  take 
tlie  "merchandise"  rate,  which  is  always  expressed  at  the 
rate  per  one  hundred  pounds. 

Scale  K  is  a  special  tariff  on  ale,  aerated  waters,  etc., 
and  is  from  80  per  cent  to  40  per  cent  lower  than  "mer- 
chandise." It  applies  at  pound  rates  on  actual  weight. 
Scale  M  is  a  special  tariff  on  eggs  in  cases.  Scale  N 
quotes  special  rates  on  perishable  foodstuffs,  such  as  pro- 
visions and  vegetables.  Originally  it  was  concerned  sim- 
ply with  farm  produce.  Its  scope  has  been  widened,  so 
that  in  the  forty-three  articles  covered  by  it  there  are 
included,  in  addition  to  provisions  and  vegetables,  cut- 
tings, fertilizers,  plants,  poultry  food,  roots,  scions,  seeds 
and  seed  grain,  stock  food,  tallow,  trees  for  setting, 
stearine  and  tubers.  Its  rates  are  from  20  per  cent  to 
30  per  cent  below  "merchandise."  Pound  rates  are 
charged  with  a  minimum  of  35  cents,  unless  the  graduate 
under  this  sea]    or  under  the  IVIerchandise  rate  is  lower. 

Section  D  rates  apply  on  packages,  not  exceeding  five 
pounds,  of  books,  stationery,  lithographs,  periodicals, 
etc.,  carried  in  competition  with  the  post  office.  At 
present,  the  express  rates  are  lower  than  those  of  the 
])ost  office  on  packages  exceeding  five  pounds.  Section 
D  rates  are  1  cent  for  each  two  ounces  or  fraction 
thereof,  subject  to  a  minimum. 

122.  Value,  weight,  and  apace. — In  the  classification 
ratings,  value,  weight,  and  space  are  considered. 


5U 


TRAFFIC 


The  value  of  the  article  is  consideml.  since  the  nor- 
n.al  rate  .  based  on  a  vah.e  per  package  not  exLing 
^50  If  the  sh.p,H.>r  des.res  the  company  to  assume  « 
1  abihty  in  excess  of  this  sum.  he  has  to  pay  addXnd 
charges,  which  are  known  as  valuation  charged  The« 
are  imposed  on  the  excess  value  for  each  $moo  valu" 
or  fraction  thereof,  as  follows: 


When,  merchandise  rate  is  Jl.OO  or  le«.  per  100  IK,.. 

..     ..  ^'00  to  $3.00   "  100    ••    . 
..     ::     8.00   "     8.00   "  100    *•  . 
over    $8.00        "  loo 


3c. 
10c. 
15c. 
«0c 


In    he  matter  of  weight,  shipment,  of  extn«,rdi„.t" 

Their  T  "."=,'""«'  ""'y  •"«ler  special  contra^ 
1  he  factor  of  wcght  is  considered  in  connection  with  the 

weight.    When  the  merchandise  rate  per  one  hundred 
pounds  ,3  less  than  *2.00,  "graduated"  charge,  ^ 

pounds     When  the  merchandiiK  rate  i,  $2.00  or  over 
graduated  charges  are  assessed  on  shipment,  under  fifty 

rl)  %pC        "*'  ^     " "'  one-hundred-^und 

wefrtTshar^;''^''  ^l  ""  P""''""  *'«"  "'nventiond 
weight  hall  apply  m  the  case  of  light  and  bulky  g«,ds, 
e.  g.,  nulhnery  shipments.  *^^ 

loS'^T'""""""'  """'^  ^y  *••«  Dominion  Expre^  in 

S  ZT^  °'  '!;^»•"P'»™'»  ■"-e  on  the  meX" 
aise  rate,  the  balance  being  on  lower  rates. 

In  the  amendment  of  the  classification  by  the  board  in 

eeilf the'S'^T'-l"'.''"?^"-^"  '^  merehandise  re- 
ceipt, the  liability  ,s  limited  to  $50.00  per  shipment  ex 

eept  where  a  higher  value  is  decided  aSd  inseS  the 


EXPRESS    SERVICE 


AIS 


receipt.  In  the  express  investigation,  the  express  re- 
ceipts which  hitherto  gave  the  conipanies  a  very  wide 
exemption  were  redrafted.    The  company  is  not  lialile — 

(a)  For  differences  in  weight  or  quantity  caused  by 
shrinkage,  leakage,  or  evaporation. 

(b)  For  loss  or  damage  occurring  after  forty-eight 
hours  (exc'  sive  of  legal  holidays)  after  notice  of  the 
arrival  of  tne  shipment  at  destination,  or  at  point  of  de- 
livery, has  been  mailed  to  the  address  of  the  consignee, 
unless  such  loss  or  damage  is  due  to  negligence  of  the 
company. 

(c)  For  loss  or  damage  which  can  be  met  by  the  com- 
mon law  defenses. 

(d)  For  loss  or  damage  occurring  in  a  custom  ware- 
house. 

(e)  For  loss  or  damage  or  delay  resulting  from  im- 
proper or  insufficient  packing,  securing,  or  addressing, 
or  from  chafing  when  packed  in  bales. 

(f )  For  loss  or  damage  to  any  fragile  article,  unless 
there  is  negligence. 

(g)  For  loss  or  damage  from  delays  beyond  its  con- 
trol. 

(h)  For  loss  or  damage  arising  out  of  examination  or 
partial  delivery  to  the  consignee  of  C.  O.  D.  shipments. 

(i)  For  damage,  loss,  or  partial  shortage,  unless  writ- 
ten notice  is  given  at  any  office  of  the  company  within 
thirty  days  from  delivery. 

(j)  For  loss  or  damage  occurring  to  shipments  ad- 
dressed to  stations  where  there  is  no  agent  of  the  com- 
pany after  such  shipments  have  been  left  at  such  station. 

(k)  For  non-delivery,  loss,  or  destruction  in  Canada, 
unless  written  notice  is  given  within  four  months  from 
the  time  delivery  should,  in  the  ordinary  course  of  transit, 
have  been  made. 

C— III— 33 


5U 


TRAFFIC 


The  word  "company"  as  used  in  this  receipt  includes 
any  connecting  express  company  subject ..  Z  .^ilwa 
Act.  The  agreement  entered  into  by  the  signmg  of  the 
receipt  ,s  bmdmg  on  the  shipper  and  all  peins  in 
privity  with  him,  and  inures  to  the  benefit  of  anv  per- 
son  or  company  to  whom  the  shipment  may  be  delivered 
for  the  performance  of  an  express  service. 

r^irr/t  Ir^^^  '''^'''*  *^^  conditions  of  which  in 
respect  of  hability  are,  subject  to  modifications  due  to  the 
difference  in  the  nature  of  the  commodities,  substantially 
the  same  as  in  the  case  of  the  merchandise  receipt 

In  the  C.  O.  D.  receipt  covering  collections  by  the  com- 
pany,  the  common  law  defenses  apply;  in  addition,  the 
company  is  exempt  from  liability  for  fire  unless  there  is 
negligence  It  is  also  free  from  liability  for  loss,  dam- 
age, or  delay  resulting  from  improper  or  insufficient 
addressing  or  securing. 

In  the  live  stock  contract,  the  company  is  exempt  from 
liability  for  delay,  injury,  or  loss  to  the  animals  from  any 
cause  whatsoever  unless  there  is  negligence.  The  attend- 
ant  accompanying  the  animals  is  required  to  sign  a  re- 
lease from  all  liability,  negligence  included. 

124.  The  standard  mileage  tanfs.-The  standard 
mileage  tariff  gives  the  merchandise  rate.  At  the  basis 
of  such  a  tanff  IS  the  question  of  the  division  of  territory 
into  mileage  blocks.  In  eastern  Canada,  these  nm  up 
to  100  miles  in  25-mile  groups;  from  100  to  200  in  50- 
mile  groups;  and  from  200  in  lOO-mile  groups  up  to  the 
maximum.  o      r     r 

When  the  general  investigation  into  express  rates  was 
conducted,  the  board  found  that  west  of  North  Bav 

l^Zfr'TTT'""'  ^'  *^  ''^'^^'  ^"P«  existed 
as  east  thereof.    Each  standard  tariff  had  its  own  par- 

ticular  mileage  grouping,  and  the  groups  were  irregular 


EXPRESS    SERVICE 


515 


and  overlapped.  Direction  was  therefore  given  that 
there  should  be  a  rearrangement  with  a  view  to  approxi- 
mating uniformity,  so  that,  for  example,  any  two  or 
more  of  the  western  groups  should  be  equivalent  to  and 
included  in  the  corresponding  eastern  group,  instead  of 
the  relation  being  fractional,  as  then  existing. 

The  eastern  and  Lake  Superior  standard  scales  then 
met  at  North  Bay.  Direction  was  given  that  to  harmo- 
nize with  freight  conditions,  the  rates  should  instead 
l)reak  at  Sudbury. 

The  meeting  point  of  the  prairie  and  the  mountain 
express  standard  mileage  scales  had  hitherto  been  at 
MacLeod  and  at  Calgary.  Direction  was  given  that  the 
rates  should  break  from  one  scale  to  another  at  the 
points  where  the  rates  broke  in  the  case  of  freight  rates. 
The  direction  given  was  in  summary: 

(1)  That  there  shall  be  '  \r  "standard"  mileage-bas- 
ing scales,  viz.: 

(a)  On  all  lines  east  of  and  including  Windsor 
and  Sudbury,  excluding  the  lines  of  the  Temiska- 
ming  and  Northern  Ontario  Railway. 

(b)  On  all  lines  west  of  and  including  Sudbury 
to  and  including  Sault  St.  Marie,  Crow's  Nest, 
Canmore,  and  Thornton,  Alberta;  also  north  of  and 
including  North  Bay. 

(c)  On  all  lines  west  of  and  including  the  ter- 
minal points  set  out  in  the  preceding  section  to  the 
Pacific  Coast  and  to  Vancouver  Island  transfer 
points. 

(d)  Vancouver  Island. 

(2)  That  the  basis  of  (a)  should  not  exceed  $8.00; 
of  (b),  $5.00;  of  (c),  $6.00  per  100  pounds  for  the  900- 
1,000  mile  group.    In  Vancouver  Island,  the  mileage 


516 


TRAFFIC 


groups  were  to  be  harmonized  without  increasing  the 
rateSs 

The  standard  rates  so  fixed  were  further  reduced  in 
Apnl,  1913,  when  it  was  directed  that  instead  of  the 
$5.00  and  $6.00  rates  ah-eady  referred  to  there  should  be 
substituted  rates  of  $4.00  and  $4.75  respectively. 

125.  Differences  in  traffic  conditions.— In  sanctioning 
differences  m  rate  basis  as  between  the  sections  covered 
by  the  different  tariffs,  differences  in  traffic  conditions 
were  recognized.  In  rearranging  rates  under  its  recent 
decision  on  express  rates  in  the  United  States,  the  Inter- 
^ate  Commerce  Commission  has  taken  a  similar  position. 
Ihe  following  words  are  from  its  judgment: 

We  have,  therefore,  felt  that  it  was  necessary  for  us  to 
recognize  the  variation  in  the  density  of  traffic  and  of  popula- 
tion and  in  the  expense  of  operating  railroads  in  the  different 
sections  of  the  country.  With  this  in  mind  as  a  basis  for  the 
formation  of  rates,  the  country  has  been  divided  into  five  grand 
subdivisions.  These  subdivisions  conform  generally  to  those 
recognized  by  the  rail  carriers  and  which  this  Commission  ha. 
m  the  consideration  of  freight  rates  been  led  to  believe  were 
based  upon  actual  differences  in  operating  and  traffic  condi- 
tions. 

Following  out  the  practice  herein  laid  down,  the  Inter- 
state  Commerce  Commission  recognizes  five  zones  dif- 
fering m  traffic  and  in  population  density,  and  has  ad- 
justed rates  with  this  in  mind. 

126.  Four  standard  tariffs.-The  standard  tariffs  are 
four  in  number  Tariff  A,  applying  east  of  Windsor 
and  Sudbury,  has  a  merchandise  rate  of  40  cents  per 
100  pounds  for  distances  of  25  miles  and  under;  from 
26-100  miles,  the  rates  are  stepped  irregularly  10  or  15 
cents  for  each  25-rnile  group;  from  101  to  200  miles, 
the  rate  steps  are  25  cents  for  each  50-mile  group;  and 


EXPRESS    SERVICE 


517 


beyond  this  up  to  the  limit  of  the  tariff  at  2,000  miles 
the  rates  aie  stepped  25  cents  for  each  100-mile  group. 
As  the  grouping  is  more  complicated  in  tariffs  B  and  C, 
it  may  be  expressed  in  a  tabular  summary: 

TARIFF  B  WHICH  COVERS  3,400  MILES: 

25  miles,  merchandise  rate  of  50c. 

75  miles,    25  mile  groups,  rate  steps  either  10c.  or  15c. 


Up  to 
26  to 
76 

111 

ill 

331 

401 


110 
210 
330 
400 
700 


25 
50 
60 
70 
75 
100 


25c. 
25c. 
25c. 
25c. 
25c. 
25c. 


701  and  beyond 

TARIFF  C   WHICH   COVERS  4,000   MILES: 

20  miles  and  under,  merchandise  rate  of  50c.  _ 

21  to    75  miles,    15  mile  groups,  rate  steps  either  10c.  or  16c. 
76  "    150       "        25     "  "  "        "        25c. 

151    "  350       "        40     "  "  "        "        25c. 

351    *'  400       "        50     "  "  "        "        25c. 

401  and  beyond    100     "         "  "        "       25c. 

Tariff  D,  which  is  concerned  with  Vancouver  Island, 
covers  135  miles.  Up  to  100  miles,  there  are  25-mile 
groups,  there  being  ten  or  fifteen  cent  increases  up  to  75 
miles  and  a  25-cent  step  on  the  next  group.  Beyond  100 
miles,  there  is  one  group  with  a  rate  step  of  25  cents. 

The  following  summary  compares  certain  of  these 
rates: 

ABC  D 


25  miles  and  under,    40c.       50c. 

100     "  75c 

1000     "  $3.00    $4.00 


20  miles  and 
under,  50c. 

$4!75 


25  miles  and 

under,  50c. 

under,  $1.00 


The  board  found  that  in  the  traffic  between  the  prairie 
section  and  British  Columbia  the  practice  was  to  make 
up  a  through  rate  by  adding  the  two  tariffs  together. 
In  order  to  bring  about  uniformity  and  lessen  the  bur- 
den of  rates,  direction  was  given  that  on  inter-division 


518 


TRAFFIC 


Between  poHl T,t  !?  sf  T™  '"  'i"'"  ''''•^'=""»- 
thereof,  throLh  1 "  L  I  u""^  *""*  P°'"''  »«* 
local  rale  elt  of  S     i  "'"  "P  ''>'  '"''"•'B  to  the 

t..ereof:':S    at'  t":L3t',''T"«  '""'^  ''-' 
Sudbury  loeal  tariff    n^,  ^  ''"'"  *'""'  «» 

standard  tariff  as  annlied  to  thAu       \       .  the  higher 
the  point  of  origin  S„'.l:*™:tlL^^^^^ 

out  the  spedfic.  rates  f„r'^  ''"'"'"  "^•"  Thi»  sets 
when  adLTo  the  "a  tes  ealtTV"''..'''  ^"'"""^  '''"'" 
give  the  through  rite  „d',w°'''  -'  ^"''^"'^  "'" 
standard  tariff  we"ofS„fl";'^'*P*  "^'"^  «-' 
n.iiea«e  gives  J::  t^tZ:!''''  '"  *^  «-«" 

may  be  made  tTthe  n„"""E.'' "'""'•  "f««n<» 
I-oial  TarTff  No  20  TI^  "'"r  ^"P**^^  Company', 
points  in  tl^7w„J„fo ''';'■'' ""/'■'P™™*^  ^^^" 
«nd  British  CoZbk  °',?,"f  ^Y""!  Pomts  in  Alberta 

are  given  a  rate  number  If  f  '  '''.""'  '"  "-^  '»"'' 
find  the  rate  per  one  lu.nJ  ^  """?P'"' "  "  '^''^'^^  to 
Quebec,  to  WnTsh    MI  T^'^  il™"*  f™™  M«niwaki, 

numberVorltitat't'^V  :drS         *";  T 

atgr^:.::ftri:terf"-S 

atn  page,  there  is  also  a  column  of 


EXPRESS   SERVICE 


519 


rate  numbers  arranged  horizontally  on  the  left  hand  of 
eacli  page.  At  the  intersection  of  the  column  headed  145 
with  the  horizontal  line  to  the  left  of  the  page  which  has 
at  its  extreme  left  700,  the  rate  of  $6.25,  which  is  the 
rate  sought,  will  be  found.  The  tariff  in  question  in  its 
271  pages  quotes  rates  from  566  initial  points  to  551 
destinations,  or  a  total  of  351,866  rates. 

^Vhere  a  shipment  is  to  move  off  the  lines  of  the 
origina     \g  express  company  to  a  point  on  the  line  of 
a  connecting  company  for  which  no  through  rate  is 
quoted,  the  agent  figures  out  the  rate  by  means  of  a 
transfer  tariff.    This  tariff  sets  out  rates  to  basing  trans- 
fer points.    For  example,  a  shipment  might  be  sent  from 
Red  Deer,  Alberta,  on  the  lines  of  the  Dominion  Ex- 
press to  North  Battleford,  on  the  lines  of  the  Cana- 
dian Northern  Express.    If  there  is  no  through  rate 
(jiiotation,  then  the  rate  shown  in  this  tariff  to  Edmon- 
ton, as  a  transfer  point,  plus  the  Canadian  Northern 
Express  local  beyond,  will  make  up  the  through  rate. 
There  is  a  chance  for  overcharge  under  such  an  arrange- 
ment, for  there  may  in  a  particular  case  be  a  number  of 
basing  transfe.'  points  available  with  different  rates.    It 
is  true  that  the  direction  to  the  agent  is  to  compute  the 
rate  by  the  basing  transfer  point,  which  gives  the  lowest 
through  rate.    But  in  the  hurry  of  shipment,  the  lowest 
combination  may  be  overlooked. 

128.  Rates  as  affected  by  quantity. — In  general,  the 
factors  which  affect  express  rates  are  more  clearly  analo- 
gous to  those  affecting  passenger  rates  than  to  those 
affecting  freight  rates.  From  the  standpoint  of  cost  of 
service,  the  difference  between  the  capitalization  in  or- 
dinary freight  business  and  in  express  service  is  attrib- 
utable to  the  fact  that  the  former  is  a  transportation 
business,  while  the  latter  is  more  of  an  agency  business. 


5W 


TRAFFIC 


The  charge  of  the  latter  is.  therefore,  not  necessarily 
looked  at  from  the  standpoint  of  the  return  on  capital 
invested,  but  from  the  question  of  what  is  the  rate  of 
I)rofit  on  the  turnover. 

While  competitive  conditions,  such  as  water  and  mar- 
ket competition,  exercise  an  important  effect  on  freight 
rates,  express  rates  are  in  a  different  condition.    Wa- 
ter competition  certainly  cannot  be  said  to  influence  in 
any  way  a  service,  the  essential  of  which  is  speed;  nor 
IS  the  express  service  influenced  in  nearly  the  same  de- 
gree by  the  question  of  competitive  points  as  is  freight 
In  general,  it  is  the  factors  which  affect  passenger 
busmess  which  apply  here.    Express  companies  do  rec- 
ognize a  difference  of  condition  as  between  their  "ex- 
clusive" or  non-competitive  points  and  points  at  which 
there  is  competition  of  another  express  company.    They 
recognize  at  competitive  points  the  effect  of  short  line 
mileage  as  well  as  the  control  over  a  two-line  movement 
of  a  single  line  haul.     The  Canadian  Express  carries 
from  Toronto  to  Welland,  a  distance  of  eighty-five  miles 
at  a  rate  of  75  cents  per  100  pounds.     The  Dominion 
Ji^xpress  and  the  American  Express,  a  two-line  move- 
ment, meet  this  rate  of  75  cents.    Fenwick.  a  point  seven 
miles  short  of  Welland  and  through  which  the  movement 
on  the  two-line  haul  passes,  has  a  rate  of  90  cents     The 
lower  rate  to  Welland  has  been  held  justifiable  as  a  com. 
petitive  rate,  while  at  the  same  time  the  higher  rate  of 
the  two-line  haul  to  the  intermediate  point  has  been 
recognized.    It  has  been  recognized  that  in  express  as 
m  freight  there  is  a  justification  for  a  reasonably  higher 
rate  on  account  of  cost  and  division  of  earnings  on  a  two- 
line  haul  than  on  a  one-line  haul.    But  at  Welland  the 
two-line  movement  had  to  meet  the  rate  of  the  one-line 
movement. 


EXPRESS   SERVICE 


521 


129.  Freight  rate  as  a  basis. — ^At  times  the  expedited 
sen'iee  afforded  in  express  business  has  been  expressed 
as  a  multiple  of  the  first-class  freight  rate.  Thus  in  some 
of  its  earlier  decisions  on  express  rates,  the  Interstate 
Commerce  Commission  held  that  an  express  rate  of 
three  times  the  first-class  freight  rate  was  not  unreason- 
able. In  the  contract  entered  into  between  the  Domin- 
ion Express  Company  and  the  Canadian  Pacific  Rail- 
way in  1907,  it  was  provided  that  the  express  rate  should 
be  2i  times  the  first-class  freight  rate.  In  practice,  how- 
ever, no  such  necessary  relation  exists.  In  the  case  of 
the  cream  rates  in  Alberta,  which  were  fixed  by  the 
board,  in  various  instances  the  express  rate  is  less  than 
the  first-class  freight  rate.  In  the  case  of  the  fruit  rates 
in  British  Columbia,  which  have  been  readjusted  by  the 
Express  Company,  the  rate  from  a  point  in  the  Okana- 
gan  Valley — for  example,  Peachland — to  such  prairie 
points  as  Swift  Current,  Moose  Jaw,  Broadview,  Re- 
gina.  Saskatoon,  and  Brandon,  is  less  than  the  first- 
class  freight  rate. 

130.  Special  circulars. — Commodity  rates  are  put  in 
force  by  special  circulars  quoting  rates  per  one  hundred 
pounds.  These  may  be  limited  to  the  one-way  direction, 
or  may  apply  "between"  points,  in  which  case  they  apply 
ill  both  directions.  The  rates  quoted  in  special  circulars 
must  not  be  exceeded  to  an  intermediate  point  embraced 
in  the  longer  distance  for  which  the  rate  is  quoted.  Scale 
X  rates  apply  where  they  are  lower  than  the  rates  quoted 
in  special  circulars.  Commodity  rates  are  issued  on 
fish — fresh,  frozen,  or  cured — ^lobsters,  oysters,  fruit, 
butter,  eggs,  dressed  poultry,  general  specials  (Scale 
N),  vegetables,  sausage  meat,  meat — fresh  or  cured, 
smelts,  export  shipments  of  bullion,  returned  empty 
newspaper  or  periodical  bags,  bread,  laundry,  currency. 


599 


TRAFFIC 


and  gold  coin.  Competition  is  recognized  in  putting  in 
a  commodity  tariff,  as,  for  example,  in  a  rate  of  80  cents 
per  100  pounds  on  horses,  minimum  10,000  pounds, 
from  Clairmont  to  Toronto,  to  compete  with  a  through 
rate  put  in  from  a  Canadian  express  point,  Stoufville,  to 
New  York. 

Instead  of  a  division  into  carlot  and  less  than  car- 
lots  as  m  freight,  express  business  recognizes: 

( 1 )  Carlots,  e.  g.,  on  horses  and  poultry. 

(2)  There  is  a  rate  quoted  for  500-pound  shipments 
of  merchandise  from  one  consignor  to  one  consignee 
forwarded  at  one  time  and  on  one  receipt.    A  shipment 
of  less  than  500  pounds  cannot  have  a  higher  charge  than 
a  500.pound  shipment.    The  articles  which  will  not  be 
carried  under  the  500  scale  are:   aeroplanes    (K.D. 
boxed) ,  animals  (domestic  or  wild,  either  alive  or  dead) 
self-propelling  vehicles,  live-stock,  birds,  poultry,  piL 
eons,  nickel  and  copper  coin,  bullion,  feathers,  live  fish 
ice-cream,  and  in  general  any  article  taking  a  higher 
classification  than  single  merchandise  rate.    In  general 
the  rate  is  about  20  per  cent  lower  than  merchandise' 
rate. 

(8)  Then  there  is  also  recognized  the  100-pound  rate 
on  merchandise  and, 

(4)  The  packages  under  100  pounds  which  are  car- 
ried on  the  graduate  scale. 

131.  r^^  graduate  *afe/e.— Approximately  90  per 
cent  of  the  packages  handled  by  express  companies 
weigh  one  hundred  pounds  or  less.  The  Interstate  Com- 
merce Commission  in  its  investigation  found  that  ap- 
proximately  one-half  of  the  express  business  consists  of 
packages  under  20  pounds  in  weight;  and  that  the  aver- 
age shipment,  including  carloads  of  horses  and  of  fruit 
and  vegetables,  is  84  pounds.    Taking  the  business  of 


EXPRESS    SERVICE 


59S 


the  Dominion  Express  Company  for  September  18, 
1912,  when  a  computation  was  made,  it  appears  that 
applying  the  same  average  to  the  year's  business  26 
per  cent  of  the  revenue  was  obtained  from  parcels  of 
11  pounds  and  under.  In  the  Express  Investigation,  it 
was  shown  that  for  a  given  month  in  1907  the  average 
weight  of  packages  shipped  in  to  Toronto  was  19 
l)ounds,  while  in  the  case  of  outward  shipments  it  was 
43  pounds.  In  eastern  Canada,  the  average  haul  per 
package — i.  e.,  all  shipments — is  about  100  miles,  while 
in  western  Canada  it  is  not  far  from  800  miles. 

The  rates  for  packages  under  100  pounds  are  worked 
out  from  a  table  of  graduated  charges  which  is  set  out 
in  the  classification.*  If,  taking  the  example  already 
given  of  a  shipment  between  Maniwaki,  Quebec,  and 
Walsh,  Alberta,  it  is  desired  to  ship  a  15-pound  pack- 
age between  these  points,  the  agent  will  look  at  the  col- 
umn in  the  graduate  table  headed  $6.25,  which  is  the 
merchandise  rate  for  a  100-pound  shipment  between 
the  points.  Then  he  will  run  down  that  column 
until  at  the  left-hand  side  of  the  page  he  finds  the 
15-pound  line,  where  this  line  intersects  the  $6.25  col- 
umn the  proper  rate,  viz.,  $1 .45  will  be  found.  The  grad- 
uate table  has  the  following  modifications  to  be  noted: 
Under  the  $1.50  rate,  shipments  in  excess  of  50  pounds 
pay  2  cents  per  pound  with  a  maximum  of  $1.50;  while 
under  the  $1.75  rate  they  pay  the  same  rate  per  pound 
with  a  maximum  of  $1.75.  As  has  been  indicated,  when 
the  merchandise  rate  is  $2  or  over  the  shipment  in  excess 
of  50  pounds  is  charged  pound  rates. 

132.  Rates  not  uniform. — Scrutiny  of  the  gradu- 
ate table  will  show  that  the  rates  are  not  built  up  on  a 
scientific  basis.    The  effect  of  the  100-pound  rate  is  not 

'  See  spedmen  on  opposite  page. 


S»4 


TRAFFIC 


earned  down  umformly  through  the  colunm,  of  rate. 
For  example,  under  the  $1  merchandi*  rate.  60  po™^ 

pan.es  that  the  expenses  in  connection  with  coUectin« 
and  dehyenng  and  handling  and  clerical  expinT^ 
p:act.c.  ly  the  «u„e  on  the  small  shipmentT^  t^ 
large  rfupment.    Further,  in  the  ca«  of  the  i^"^ 

Z™L^  •"■"'  '"^"  "^^  • '"««  ""ount  of  such 
rfupments  on  one  wagon  trip,  thus  cutting  down  the 
wagon  mUeage  necessary.  * 

There  is  considerable  force  in  this  contention    At  th. 
»«ne  tune,  in  view  of  what  ha,  been  s.id«  to  .feL« 

thTsLan  """'!*'  "■^P'^"-*  ot  the  graduate  tair^ 
the  smaUer-sized  package  is  apparent 

In  the  Express  Investigation,  it  was  found  that  only 
some  twenty-nme  rate  columns  were  oiven  in  thTlA 
ate  table  and  that  where  the  rate  ^^^^^l  t^ofnta 
was  not  given  the  next  higher  rate  wasTbe  uSt 
arnvmg  at  the  rate  on  the  particular  p^jkagT  mere 
there  was  a  considerable  gap  between  ™t^%i.-  . 

a  very  considerable  ^IdedV.etZ,':^^^^^ 
w«  given  that  gr«luate,  had  to  be  added  und«.Tth2 
100-pound  merchandise  rates.  There  are  now  72  r^ 
columns  in  the  table.  "** 

188  Single  thr<mgh  rate..-Ir,  the  matter  of  throueh 
rates  on  packages,  under  the  graduate  table,  mZg 
o^er  two  Imes,  the  pr«:tice  had  been  to  graduate  Tc! 
on  each  of  the  local  rates.  By  an  order  issu^n  No^m 
a  ",;ni  :.  ^P"^"  companies  were  directed  to  apply 
a  smgle  graduate.  The  effect  of  this  is  as  foltow 
suppose  a  ten-pound  shipment  is  moving  on"  thZl 
movement,  the  locaU  for  which  on  the  n^reL^dt  "afe 


EXPRESS    SERVICE 


BU 


are  $1  and  $1.50  respectively,  graduating  on  each  local 
rate  there  would  be  a  charge  of  45  cents  and  75  cents, 
or  $1.20.  With  the  single  graduate  on  the  $2.50  rate, 
tlie  charge  is  75  cents.  When  the  graduate  was  made 
on  the  sum  of  the  locals,  there  really  was  included  in  the 
ite  charges  a  payment  for  four  terminal  services  in- 
stead of  two  as  at  present. 

The  effect  of  the  reduction  in  western  rates,  already 
referred  to,  whereby  a  reduction  of  20  per  cent  in  the 
standard  rates  was  directed,  affected  not  only  the  mer- 
chandise rates  and  the  special  scale  for  shipments  of  500 
pounds,  it  also  affected  the  quantities  of  less  than  100 
pounds  moving  unde^  the  merchandise  rate  and  scales 
KandM. 


CHAPTER   IX 

INLAND   WATER    TRANSPORTATION 

184    Water  transportation  as  a  regulator  of  rates.- 
In  dealing  with  the  factors  affecting  railway  rates,  vari- 
ous examples  have  already  been  given  of  the  influence 
exercised  by  water  on  rail  movements.    In  general,  where 
there  is  competition  between  these  two  methods  of  trans- 
portation,  the  rail  rate  can  exceed  the  water  rate  only 
to  the  extent  it  gives  superior  facilities.    Some  of  the 
following  factors  of  advantage  are  possessed  over  in- 
and  water  transportation  by  rail  transportation:  in 
thecase  of  ocean  transportation,  it  possesses  all  of  them; 
goods  earned  by  water  have  to  bear  marine  insurance- 
the  rail  carrier  is  an  insurer;  liability  to  salt  water  dam- 
age; longer  time  in  transit  and  consequent  greater  in- 
terest on  capitel  invested;  uncertainty  in  date  of  arrival. 

whUTk        1      """l*  ^  *^^"^  ^^'  «^"^'«1  convenience 
which  the  railway  affords,  which  is  estimated  as  worth  a 

premium  of  at  least  5  per  cent  over  water  rates.    This 
has  been  put  in  the  form  of  an  example  by  Mr.  W  R 
Wheeler^  Traffic  Manager  of  the  San  FranciL  Mer-' 
chants  Exchange: 

...  let  us  take  two  plates  of  metal  of  equal  gauge  and 
d.n,ens,on-^ne  of  copper,  the  other  of  iron.  The  value  of  the 
copper  at  pomt  of  shipment  is.  say.  15  conts  per  pound,  while 
that  of  iron  is  «  cents  per  pound. 

526 


INLAND   WATER   TRANSPORTATION         5«7 

Per  hundred  pound* 

Sail  freight  on  the  copper AOc.  Iron,  AOc. 

In.surance 45c.              "  06c. 

Interest 80c.              "  04c. 

Salt  water  damage 00c.              "  06c. 

$1.85  68c. 

Add  for  rail  convenience  5  per  cent 06  OSc. 

$1.31  71c. 

By  this  it  is  plain  that  while  the  copper  occupies  no  more 
(<pacc  than  the  iron,  and  is  of  such  a  nature  that  no  salt  water 
damage  is  charged  against  it — the  reverse  being  the  case  with 
the  iron — and  although  the  rate  by  sea  is  the  same  on  both, 
the  railroad  is  enabled  to  obtain  a  rate  on  the  copper  almost 
SCO  per  cent  higher  than  the  sail  rate,  while  on  the  iron  it 
obtains  a  rate  less  than  50  per  cent  higher  than  the  sail 
carrier.  .  .  . 

The  efficiency  of  water  competition  on  inland  waters 
is  affected  by  the  location  of  cities  and  towns.  Where 
these  are  adjacent  to  the  water,  the  competitive  effects 
are  more  readily  felt.  But  even  in  the  case  of  points 
some  distance  inland,  for  example,  throughout  the  west- 
ern  peninsula  of  Ontario,  the  effect  of  the  water  route 
is  felt.  As  a  particular  example  on  the  all-rail  move- 
ment of  coal  to  London,  there  is  the  competitive  effect 
of  the  across-the-lake  movement  to  Port  Stanley  and 
thence  to  London. 

185.  Efficiency  of  waterways. — Inland  waterways  dif- 
fer in  point  of  efficiency.  The  lakes  and  navigable 
waters  are  public  highways  accessible  to  all.  Canals 
require  larger  investments  of  capital,  but  are  still  com- 
mon highways  on  which  the  individual  may  use  his  own 
vessel.  The  accepted  practice  is  to  have  canal  construc- 
tion carried  on  at  public  expense  as  a  charge  against 
the  taxing  power  of  the  country.    When  canals  occur 


528 


TRAFFIC 


on  a  route,  they  aid  in  determining  the  maximum  effi- 
ciency of  a  route.  The  same  thing  is  true  in  the  case 
of  dredging,  as  in  the  St.  Mary's  River  and  through  the 
St.  Clair  flats.  Just  as  the  governing  grade  of  a  rail- 
way, in  a  division,  determines  in  practice  the  hauling 
efficiency  of  an  engine  (no  matter  what  may  be  its  mavi- 
mum  tractive  efficiency)  through  the  division,  thereby 
affecting  the  costs  of  haulage,  so  it  is  the  shallowest  part 
of  a  water  route  that  governs  the  loading  efficiency 
of  the  route. 

The  policy  adopted  as  to  canals  may  be  one  of  charg- 
ing tolls  with  a  view  to  earning  a  return  on  the  invest- 
ment, or  they  may  be  free  of  tolls,  the  charge  being  one 
against  the  general  revenues  of  the  country  as  in  the 
case  of  highway  construction.  While  individual  boats 
may  use  the  water  route,  subject  to  the  due  observance 
of  the  recognized  rules  of  navigation,  in  the  case  of  rail- 
ways, the  necessity  of  unified  control  leads  to  a  spe- 
cialized type  of  management.  The  vessel  may  ply  from 
port  to  port  using  different  routes  according  to  the  ne- 
cessities of  trade.  In  the  case  of  railways,  the  large  in- 
vestment of  capital  necessary  limits  the  number  of  routes 
available. 

136.  Canal  terminals. — In  the  development  of  canals, 
independent  of  great  waterway  systems,  an  exceedingly 
important  matter  is  the  location  of  the  terminals  of  these 
canals  in  the  various  towns  and  cities  they  serve.  One 
disadvantage  the  English  combined  canal  and  waterways 
systems  have  is  that  their  terminals  are  so  located  in 
large  cities  that  it  is  cheaper  to  haul  by  rail  direct  to 
destination,  as  well  as  more  convenient,  than  to  pay  the 
water  charge  and  the  wagon  haul  through  the  city  to 
destination.  In  the  cities,  businesses  engaged  in  dis- 
tribution grow  up  adjacent  to  the  railway  terminals,  and 


INLAND   WATER   TRANSPORTATION         529 


in  many  cases  have  railway  sidings  where  delivery  is 
taken.  If  it  costs  25  cents  a  ton  to  haul  coal  by  wagon 
from  the  canal  terminr^  o  the  coal  yard,  this,  if  the  canal 
toll  is  8  mills  per  ton  ^  mile,  is  equivalent  to  the  cost 
of  hauling  the  coal  ei^       -three  miles  on  the  canal. 

137.  Effect  of  higlmay  coats. — Highway  costs  are  the 
highest  of  transportation  costs  per  mile.  The  United 
States  Department  of  Agriculture  made  a  special  in- 
vestigation in  1907  of  the  highway  costs  of  hauling  ag- 
ricultural products  from  farms  to  shipping  points.  Tak- 
ing hemp,  which  had  the  lowest  average  haul — 5  miles — 
the  ton  mile  cost  of  haulage  was  28  cents.  To  haul 
grain  by  wagon  into  Edam,  Saskatchewan,  from  a  dis- 
tance of  85  miles  costs  per  100  pounds  2i  times  what 
it  costs  to  haul  it  from  that  point  to  the  head  of  the  lakes, 
a  distance  of  1,200  miles. 

Of  course,  the  costs  will  vary  with  the  conditions  of 
the  road,  the  nature  of  construction  of  the  road,  the  type 
of  motor  power  used,  whether  animal  or  gasoline,  etc. 
But  striking  a  rough  general  average,  the  cost  of  haul- 
ing on  earthem  roads  by  animal  power  is  about  25  cents 
|)er  ton  mile.  It  is  apparent  that  in  wagon  haulage  on 
highways  there  are  not  available  the  same  opportunities 
to  take  advantage  of  the  economies  of  bulk  movements 
as  are  present  in  the  case  of  railways  and  waterways. 

188.  Canadian  lake  and  canal  route.— From  the  head 
of  Lake  Superior  to  Montreal  the  distance  by  the  water 
route  is  1,228  miles.  From  Duluth  and  Chicago  to  the 
same  point  the  water  distances  are  1,857  and  1,286  miles, 
respectively.  Out  of  the  distance  between  Port  Arthur 
and  Montreal,  the  canals  to  be  traversed  represent  78i 
miles,  i.  e.,  lockages  are  involved  in  6  per  cent  of  the 
total  route. 

Through  the  "Soo"  Canal,  which  has  a  lock  900  feet 

C-III— S4 


530 


TRAFFIC 


in  length,  and  which  is  21  feet  5  inches  in  depth,  the 
largest  vessels  plying  on  the  lakes  can  pass.  The  vessels 
passing  through  it  can  move  without  breaking  bulk  to 
the  foot  of  Lake  Erie.  East  through  the  Welland  Canal 
and  the  St.  Lawrence  canals  to  Montreal,  the  governing 
locks  are  270  feet  in  length  and  14  feet  in  depth. 

This  determines  the  cargo  load  and  type  of  vessel 
using  the  lower  portion  of  this  route,  and  differentiates 
the  type  of  vessel  in  use  on  it  from  that  used  between 
Lakes  Superior  and  Erie.  In  general,  on  the  lower 
portion  of  the  route,  a  vessel  255  feet  in  length,  42  ^eet 
6  inches  wide,  drawing  18  feet  and  carrying  2,212  tons 
of  cargo  may  be  regarded  as  typical  of  the  ordinary  ves- 
sel accommodation  afforded  by  this  portion  of  the  route. 

189.  From  Georgian  Bay  to  Montreal. — Considera- 
tion of  the  short  line  movement  between  Georgian  Bay 
and  Montreal  has  led  to  public  interest  in  the  Georgian 
Bay  Canal  route  which  would,  in  the  movement  from 
Fort  William  to  Montreal,  have  a  distance  advantage 
over  the  route  of  the  Welland  Canal  of  862  miles.  Sur- 
veys of  the  route  on  the  basis  of  a  minimum  depth  of 
22  feet  have  been  made  by  the  Dominion  (Government, 
and  an  investigation  of  its  conmiercial  possibilities  will 
shortly  be  made.  The  proposed  depth  would  enable  a 
lake  vessel  to  go  through  from  the  Upper  Lakes  to  Mon- 
treal. 

In  comparing  this  route  with  existing  or  projected 
routes,  the  question  of  the  elevation  to  be  overcome  is  of 
importance.  Between  Georgian  Bay  and  Montreal, 
there  are  440  miles  of  navigation.  Natural  channels 
are  available  for  80  per  cent  of  this  distance.  To  reach 
the  sununit  level  689  feet  of  lockage  will  be  necessary. 
By  the  Welland  Canal  route  only  584  feet  of  lockage 
are  necessary.   The  (Georgian  Bay  route  may,  as  a  factor 


INLAND    WATER   TRANSPORTATION 


581 


in  the  general  traffic  of  the  lakes,  be  compared  with  the 
much  discussed  deepening  of  the  Mississippi  River 
which  is  intended  to  afford  a  traffic  outlet  from  Lake 
Michigan  to  the  Gulf  of  Mexico.  This  proposed  deep 
waterway  would  between  its  termmi  have  a  distance  of 
1,G25  miles. 

It  is  true  thai  the  estimated  cost  of  a  deep  waterway 
by  this  route  does  not  call  for  more  than  $40,000,000,  or 
less  than  half  of  the  cost  of  the  Georgian  Bay  route. 
But  there  must  also  be  considered  the  nature  of  the 
stream,  its  tortuous  course  which  is  60  per  cent  longer 
than  the  direct  distance,  and  the  constant  expenditure 
on  dredging  which  would  be  necessitated  by  the  large 
amounts  of  silt  carried  down  by  the  river. 

While  the  Georgian  Bay  is  feasible  from  an  engineer- 
ing standpoint,  the  important  question  is  its  probable 
traffic  future.  The  saving  in  time,  consequent  in  the 
shorter  distance,  and  the  reduction  in  rate  consequent 
thereon  may  be  expected  to  attract  traffic.  On  the  basis 
of  a  movement  of  four  miles  per  hour  through  the  canal- 
ized portion  of  the  route  vessels  would  move  from 
Georgian  Bay  to  Montreal  in  seventy  hours,  giving  an 
advantage  of  from  one  and  one-half  to  two  days  over 
existing  routes.  This  calculation  is  based,  however,  on 
the  conditions  affecting  the  existing  fourteen-foot  wa- 
terway by  way  of  the  Welland  Canal. 

The  Welland  Canal  is  being  reconstructed  to  permit 
the  passage  of  the  Upper  Lakes  vessels.  If  the  St.  Law- 
rence route  to  ISIontreal  were  deepened  to  twenty-two 
feet  to  Montreal,  it  is  probable — subject  to  the  traffic 
conditions  already  mentioned — that  the  Georgian  Bay 
Canal  would  have  no  advantage  in  point  of  time.  The 
deepening  of  the  I^ower  Lake  and  river  canals  and  the 
increase  in  the  size  of  the  locks  would  lessen  the  amount 


5Si 


TRAFFIC 


of  lockage.  At  the  same  time,  the  longer  stretches  of 
lake  and  river  navigation  would  permit  higher  average 
speeds  than  would  be  possible  on  the  northern  route. 

140.  Ottarca  system. — The  canals  of  the  Ottawa  sys- 
tem are  of  limited  importance,  having  locks  200  feet 
long  and  9  feet  in  depth.  On  the  Rideau  Canal  system, 
the  locks  are  124  feet  long  and  5  feet  deep;  while  on  the 
Richelieu  system  they  are  200  feet  in  length  and  7  feet 
in  depth.  The  Trent  Canal,  which  is  intended  to  connect 
Georgian  Bay  and  the  eastern  end  of  Lake  Ontario, 
affords  a  tortuous  water  route  six  times  as  long  as  the 
direct  land  route.  The  governing  depth  is  five  feet.  The 
route  is  being  constructed  as  a  barge  route.  Among 
other  disadvantages  as  compared  with  the  Welland 
Canal  route  is  the  fact  that  it  has  five  hundred  feet  more 
of  vertical  lift. 

141.  No  canal  tolls. — From  an  early  date  the  con- 
struction of  improved  transportation  ways  in  Canada, 
both  by  water  and  by  rail,  has  looked  to  participation  in 
the  trade  of  the  western  states  adjoining  the  Great 
Lakes.  Down  to  1902  tolls  were  charged  on  the  various 
canals.  Since  1903  tolls  have  not  been  charged.  The 
advantage  of  increased  traffic,  as  reacting  on  the  gen- 
eral business  of  Canada,  is  expected  to  compensate  for 
this  additional  charge  on  the  general  revenue  of  the 
country. 

Throughout,  the  aids  to  navigation  and  the  deepen- 
ing of  harbors  are  charged  against  the  general  revenues 
of  the  country. 

142.  Great  Lakes  traffic. — A  tremendous  volume  of 
freight  and  vessel  tonnage  has  developed  on  the  Great 
Lakes.  Without  comparing  values,  it  may  be  said  that 
there  annually  pass  through  the  two  canals  at  Sault  Ste. 
Marie,  in  seven  and  a  half  months,  three  times  the  vessel 


INLAND   WATER   TRANSPORTATION         533 

tonnage  passing  through  the  Suez  Canal  in  a  year. 
W'lien  to  this  there  is  added  the  vessel  tonnage  between 
Lakes  Huron  and  JSIichigan  on  the  one  hand  and  Erie 
on  the  other,  the  result  may  be  measured  by  the  state- 
ment that  during  the  season  of  navigation  a  vessel  passes 
Detroit  every  six  minutes.  The  number  of  vessels  pass- 
ing Detroit  is  ten  times  greater  than  the  number  passing 
through  the  Suez  Canal.  The  freight  tonnage  passing 
Detroit  is  greater  than  the  aggregate  of  all  the  cargoes 
home  by  all  the  ships,  British  and  foreign,  entering  the 
j)orts  of  Great  Britain  in  a  year. 

148.  The  Upper  Lakes. — In  tne  traffic  of  Canada's 
inland  waters,  that  of  the  Upper  Lakes  is  the  most  im- 
jjortant.  The  movement  through  the  Welland  and  the 
St.  Lawrence  canals  represent,  respectively,  7  per  cent 
and  6  per  cent  of  the  total  movement  through  the  Cana- 
dian canals;  the  movement  through  the  Canadian  "Soo" 
Canal  is  88  per  cent  of  the  total.  Of  the  total  capital 
expenditure  on  canals  since  Confederation  84  per  cent 
has  been  on  the  "Soo,"  Welland,  and  St.  Lawrence 
canals.  Between  1909  and  1912  the  freight  traffic  pass- 
ing through  the  Canadian  "Soo"  Canal  increased  by 
42  per  cent.  In  the  same  period  the  traffic  passing 
through  all  Canadian  canals  increased  by  41  per  cent. 
Of  the  increase  62  per  cent  was  attributable  to  the  "Soo" 
Canal. 

A  significant  fact  in  the  development  of  lake  trans- 
portation has  been  the  increasing  importance  of  the 
Upper  Lakes.  The  great  increase  in  the  traffic  passing 
tlirough  the  "Soo"  canals  is  one  index  of  this.  With  the 
development  of  the  United  States,  the  westward  move- 
!uent  of  grain  centers  and  the  expansion  of  population 
iiave  lessened  the  transportation  importance  possessed  by 
the  Lower  Lakes  in  the  early  days  of  the  Canadian  canal 


584 


TRAFFIC 


system.  In  the  United  States,  the  center  of  wheat  pro- 
duction  has  moved  west  and  north.  In  Canada,  the  more 
recent  development  of  the  wheat  areas  of  the  North- 
west has  intensified  the  significance  of  this  northward  and 
westward  pull.  The  transportation  significance  of  these 
changes  is  that  all  the  shortest  lines  of  communication 
from  the  Northwest  to  the  seaboard  lie  across  Canada. 
144.  Character  of  freight— In  the  general  traffic  of 
the  lakes,  90  per  cent  is  represented  by  iron  ore,  coal, 
grain,  flour,  and  lumber.  The  significance  of  this  is 
shown  in  the  following  percentage  comparison,  which 
brings  out  the  much  simpler  nature  of  the  traffic  through 
the  Canadian  "Soo"  Canal  than  through  the  lower 
canals : 


Agricidtural     Animal       Manufac- 
Productn       Psoduetn  tares 


Produce  of    Produce  «jf 
Forest  Mint* 


Soo  Canal 11.4  0.001  0.i4 

Wetland  i'unal 42.3  O.S  gl.9 

St.  Lawrence  Canals.      32.2  0.2  13^3 


0.13 
7.9 
16.6 


88.229 

27.7 

37,7 


Of  the  American  traffic  carried  through  all  Canadian 
canals  in  1912,  83  per  cent  was  iron  ore  and  8  per  cent 
coal.  The  bulk  of  the  movement  through  the  "Soo" 
canals  is  eastbound.  The  figures  for  August,  1918, 
which  are  the  least  available,  show  21  tons  of  freight 
moving  eastbound  for  every  ton  moving  westbound. 

With  the  expanding  grain  traffic  of  the  Canadian 
Northwest,  there  arise  two  important  questions:  what 
proportion  of  it  is  lake  borne  and  what  routes  does  it 
take?  There  are  in  Manitoba,  Saskatchewan,  and  Al- 
berta 2,265  country  elevators  and  warehouses  with  a  ca- 
pacity of  70.4  millions  of  bushels.  The  Dominion  gov- 
ernment has  adopted  the  policy  of  constructing  elevators 
at  interior  points.  Including  the  new  government  ter- 
minal elevator  at  Port  Arthur,  with  a  capacity  of  8,250,- 


INLAND   WATER   TRANSPORTATION         SS5 

000  bushels,  there  is  now  at  Fort  William  and  Port 
Arthur  storage  capacity  for  41.1  millions  of  bushels. 

145.  Canadian  grain. — ^As  one  of  the  great  problems 
of  the  Canadian  Northwest  has  been  concerned  with  rush- 
ing the  grain  to  the  lakes  before  the  close  of  navigation, 
the  problem  of  how  and  to  what  extent  the  movement 
from  the  head  of  the  lakes  is  water-borne  is  important. 

Between  1909  and  1912 — Canadian  was  not  differen- 
tiated from  American  grain  in  the  statistics  before  1909 
—the  Canadian  wheat  moved  via  the  Canadian  "Soo" 
Canal  increased  from  forty-eight  to  eighty-three  millions 
of  bushels,  an  increase  of  74  per  cent.  The  total  quantity 
of  Canadian  wheat  moved  by  water  through  the  two  ca- 
nals at  the  "Soo"  increased  from  65.6  millions  of  bushels 
in  1911  to  109.8  millions  in  1912,  an  increase  of  51  per 
cent.  In  addition,  there  passed  through  the  two  canals 
2.8  millions  of  barrels  of  Canadian  flour,  which,  allowing 
4^  bushels  of  wheat  to  a  barrel  of  flour,  gave  a  total 
water-borne  wheat  movement  of  128.2  millions  of  bushels 
of  wheat. 

The  movement  of  Canadian  wheat  from  the  head  of 
the  lakes  and  its  destinations  for  a  period  of  years  is 
expressed  in  the  following  percentage  summary: 

1909        1910        1911        1912 

Fort  WiUiam  to  Montreal 219  25.6  20.1  13.6 

"  Georgian  Bay 

ports 27.9  24.6  15.6  17.8 

Fort  William  to  other  Canadian 

ports 21.1  18.5  18.7  18.6 

Fort  WiUiam  to  Buffalo 26.7  80.8  48.8  40.2 

Duluth  to  Canadian  ports 1.8  .6  .7  17 

"       "U.S.  ports 1.1  .6  1.1  5.2 

"     unclassified *-® 

The  distribution  of  the  movement  is  indicative  of  the 
importaiM^  of  short-rail  route  methods  of  communication 


5se 


TRAFFIC 


>vith  the  seaboard,  either  across  Ontario  or  via  Buffalo. 
Of  the  16.6  millions  of  bushels  of  elevator  capacity  in 
the  public  elevators  of  Ontario,  60  per  cent  are  to  be 
found  at  the  Georgian  Bay  ports. 

146.  Lake  vessels.— In  1912,  the  average  Canadian 
steam  vessel  engaged  in  trade  between  Canada  and  the 
ITnited  States  entering  Port  Arthur  was  2,488  regis- 
tered net  tons,  while  the  average  American  vessel  was 
2,595  tons.  The  unimportance  of  sail  tonnage  is  shown 
m  the  fact  that  no  sailing  vessels  are  recorded  for  Port 
Arthur,  while  for  Fort  William  there  were  thirteen 
American  sail-vessels  and  one  Canadian. 

The  relatively  simple  nature  of  the  traffic  of  the  Upper 
Lakes  and  the  large  bulk  of  the  individual  items  thereof 
have  encouraged  specialized  vessel  construction.  Grain 
and  flour  furnish  a  considerable  amount  of  cargo  for  the 
smaller  vessels,  such  as  the  wooden  steamers  in  the  three 
hundred  and  three  hundred  and  fifty  foot  classes.  Lum- 
ber is  handled  to  a  large  extent  by  wooden  steam  barges 
which  tow  loaded  barges.  Schooners  are  also  to  some 
extent  still  engaged  in  this  traffic.  It  is  in  the  traffic 
in  ore,  grain,  and  coal  that  the  large  bulk  freighters  are 
used.  In  this  traffic,  the  tramp  or  "wild"  boats  are  of 
importance  as  a  regulative  factor.  Tank  boats  are  also 
used  in  the  carriage  of  oil— for  example,  by  the  Imperial 
Oil  Company— to  the  head  of  the  lakes,  where  supplies 
of  oil  are  stored  to  be  shipped  on  further  west  in  the 
winter  season. 

The  package  freight  of  the  lake,  which  amounts  to 
about  6.6  millions  of  tons,  includes  general  merchandise, 
such  as  silks  and  woolen  fabrics  and  manufactured  goods, 
canned  goods,  fine  furniture,  bar  iron  and  steel,  etc. 
Here  the  traffic  is  carried  mostly  by  line  boats.  The 
rates  of  the  line  boats  are  usually  lower  than  those  of  the 


INLAND   WATER   TRANSPORTATION 


587 


rail  carriers  by  an  agreed  difference.  While  the  North- 
ern Navigation  Company  and  the  Dominion  Transpor- 
tation Company  enter  into  through  rate  arrangements 
with  the  railways,  there  are  various  through  all-water 
independent  lines  operating  to  the  head  of  the  lakes,  e.  g., 
the  Inland  Lines  operating  from  Montreal,  Toronto,  and 
Hamilton  to  Sault  Ste.  Marie,  Ont.,  and  Fort  William, 
the  Canadian  Lake  Line  and  the  Merchants'  Mutual. 

147.  Formation  of  Canada  Transportation  LineSf 
Ltd. — In  June,  1018,  an  amalgamation  was  formed  to 
control  various  freight  and  passenger  services,  whereby  a 
new  company  with  a  capital  of  $25,000,000,  the  Canada 
Transportation  Lines,  Limited,  took  over  the  Richelieu 
and  Ontario  Navigation  Company,  the  Inland  Lines, 
Northern  Navigation  Company,  St.  Lawrence  River 
Steamboat  Company,  Quebec  Steamship  Company, 
Canada  Interlake  Line,  Ontario  and  Quebec  Naviga- 
tion Company,  Merchants'  Montreal  Line,  S.  S.  Had- 
dington, Thousand  Island  Steamboat  Company. 

The  Richelieu  and  Ontario  Company  already  con- 
trolled by  purchase  or  by  stock  ownership  the  Inland 
Lines,  Northern  Navigation  Company,  Niagara  Navi- 
gation Company,  St.  Lawrence  River  Steamboat  Com- 
pany, Thooaand  Island  Steamboat  Company,  and  Mer- 
chants' Montreal  Line.  The  Quebec  Steamship  Com- 
])any  operated  a  service  between  Quebec  and  the  mari- 
time provinces,  as  well  m  betweoi  Quebec,  New  York, 
and  the  West  Indies.  The  Canada  Interlake  Line  had 
already  ccHisolidated  the  interests  operating  under  the 
name  of  the  Merchants'  Mutual  Luie. 

148.  Advent  of  large  ve»»el». — In  1898,  the  construc- 
tion of  a  vessel  475  feet  long  for  the  Bessemer  Steam- 
ship Company,  an  American  lake  boat  company,  was 
hailed  as  marking  an  epoch  in  lake  shipbuilding.    To- 


5S8 


TRAFFIC 


day  there  are  600-foot  freighters,  and  larger  vessels  are 
not  unknown.  Such  boats,  while  monstrosities  from  the 
standpoint  of  naval  architecture,  have  great  carrying  ca- 
pacity. The  "J.  Pierpont  Morgan,"  which  is  605  feet  5 
inches  in  length,  can  carry  in  a  single  voyage  a  cargo 
equal  to  the  combined  cargo  capacities  of  every  vessel 
afloat  on  Lake  Superior  in  1861.  On  the  day  this  boat 
was  launched,  its  captain  said  that  it  could  carry  in  one 
voyage  as  much  ore  from  Duluth  to  Cleveland  as  the 
first  steamer  he  commanded  twenty-eight  years  before 
could  have  carried  in  two  years  and  a  half. 

While  a  boat  of  this  type  is  built  so  that  it  can  carry 
nearly  21,000  tons  of  freight,  the  channels  in  the  Detroit, 
St.  Clair,  and  St.  Mary's  rivers  limit  its  effective  car- 
rying capacity  to  about  fourteen  thousand  tons.    In  the 
loading,  management  and  unloading  of  such  a  vessel, 
mechanical  appliances  are  freely  used.     It  is  operated 
economically  at  a  speed  of  from  11  to  12  miks  per  hour, 
with  a  coal  consumption  of  5  pounds  for  each  100-ton 
miles,  about  one-fourth  of  the  consumption  required  for 
the  performance  of  the  same  work  by  a  railway.    A  six 
hundred-foot  ore  boat  can  be  loaded  by  the  use  of  ore 
docks  in  two  hours  and  unloaded  in  from  five  to  ten 
hours.    An  ore  boat  returning  light  can  make  thirty 
round  trips  in  a  season  between  Superior  and  Cleveland. 
If  it  takes  back  coal,  it  can  make  twenty  round  trips. 
The  largest  Canadian  freighter,  551  feet  in  length,  the 
"James  Camithers,"  was  wrecked  in  the  great  storm  of 
November,  1918. 

149.  Loading  and  unloading.— The  loading  and  un- 
loading of  grain  can  be  carried  on  with  great  expedition. 
At  the  new  government  elevator  at  Fort  William,  100,- 
000  bushels  can  be  unloaded  from  the  cars  in  an  hour, 
while  a  600-foot  car  can  be  loaded  in  less  than  four  hours. 


INLAND   WATER   TRANSPORTATION         5S9 

In  one  day  in  1912,  fourteen  boats  took  on  at  Fort 
William  and  Port  Arthur  8,000,000  bushels  of  grain.  At 
the  end  of  September,  1918,  one  grain  train  came  into 
Winnipeg  with  68  cars  of  wheat,  or  76,500  bushels.  From 
Winnipeg  to  the  head  of  the  lakes,  the  trains  average 
about  41  cars.  This  means  that  one  600-foot  boat  can 
take  on  nine  such  train  loads.  In  the  case  of  the  8,000,- 
000  bushels  loaded  in  one  day,  this  was  equivalent  to  65 
train  loads.  The  grain  vessels  can  handle  out  of  Fort 
William  and  Port  Arthur  in  ten  days  as  much  grain  as 
the  Canadian  Pacific  can  handle  east  by  raU  while  navi- 
gation is  closed. 

When  the  grain  arrives  at  Port  McNicoU,  for  exam- 
ple, the  Canadian  Pacific  port  on  Georgian  Bay,  it  is 
found  that  the  best  average  so  far  made  in  iinloading  is 
375,000  bushels  in  18i  hours.  From  this  point,  the  Ca- 
nadian Pacific  was  sending  forward,  early  in  November, 
1918, 100  cars  a  day.  That  is  to  say,  assuming  the  aver- 
age of  unloading  to  keep  up  during  a  twenty-four  hour 
period,  it  would  take  five  days  to  move  away  from  the 
elevator  what  was  unloaded  in  one. 

150.  Combined  inland  and  ocean  tra/jtc—li  is  at  times 
urged  that  the  improvement  of  the  St  Lawrence  canals, 
if  this  follows  the  improvement  now  under  way  on  the 
Welland  Canal,  or  the  construction  of  the  G^rgian  Bay 
Canal,  will  lead  to  ocean-going  vessels  carrying  their 
cargo  in,  without  breaking  bulk,  to  lake  ports  and  receiv- 
ing there  export  freights.  Without  going  into  earlier 
experiences,  reference  may  be  made  to  the  fortunes  in 
1901  of  the  vessels  built  for  the  Counselmen  Sjmdicate 
by  the  American  Shipbuilding  Company.  Although 
they  journeyed  under  their  own  steam  from  Chicago  to 
Europe,  the  venture  was  so  improfitable  that  it  was  given 
up  after  one  season.    The  fact  that  the  vessels  could  not 


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540 


TRAFFIC 


load  to  their  full  depth  of  twenty  feet  until  Montreal 
was  reached  was  peculiar  to  the  existing  canal  depth. 
In  addition,  they  could  not  compete  in  cargo  capacity 
with  the  larger  vessels  either  of  the  lakes  or  of  the  ocean. 
Their  sailors  were  paid  on  the  lake  scale  of  wages,  about 
twice  as  high  as  the  ocean  scale.    In  addition,  the  ves- 
sels  were  subjected  to  high  insurance  charges.     The 
^  orth  Atlantic  requires  especially  stout  construction. 
1  he  lake  vessel  is  more  lightly  constructed.  The  stronger 
hulls,  etc.,  needed  for  the  ocean  voyage  add  about  20 
per  cent  to  the  cost.    The  lake  vessel,  on  account  of  the 
smaller  amount  of  coal  needed  to  be  carried,  has  greater 
cargo  space  in  proportion  to  size  than  the  ocean-going 
vessel.    In  general,  the  latter  costs  about  twice  as  much 
per  ton  of  cargo  capacity  as  the  former.    A  combined 
lake  and  ocean  type  of  vessel  would  lack  the  economic 
advantages  attaching  to  the  more  specialized  type. 

151.  Lake  rflie«.— Figures  collected  by  the  Railways 
and  Canals  Department  show  the  average  lake  rate,  in 
1912,  on  Canadian  traffic  as  .194  cents  per  ton  per  niile 
while  the  United  States  traffic  using  the  Canadian  inland 
waterways  showed  an  average  of  .067  cents  per  ton  per 
mile.  At  the  same  time,  the  average  ton  mile  rate  for 
Canadian  railways  was  .757  cents  per  ton  per  mile.  Put- 
ting this  in  a  readily  comparable  form,  $1.00  carried 
one  ton  13?  miles  by  rail,  515  miles  in  Canadian  lake 
traffic  and  1,498  miles  in  United  States  lake  traffic  using 
Canadian  waterways. 

A  comparison  between  the  rail  gross  ton  mUe  rate  and 
the  water  ton  mile  rate  is  not  conclusive.  In  the  ton 
mile  of  the  railway  there  is  averaged  up  high  grade  and 
low  grade,  long  haul  and  short  haul,  carlot  and  less  than 
carlot  business.  In  lake  business,  the  movement  is  al- 
most exclusively  concerned  with  a  few  bulky  commod- 


INLAND    WATER    TRANSPORTATION         541 

ities.  In  comparison  with  the  Canadian  lake  ton  mile 
rate  of  .194  cents  may  be  taken  the  all-rail  ton  mile 
rate  from  For'^^  William  to  Montreal  for  the  same  season, 
viz.,  .402  ceiili,  mider  which  rate  a  ton  of  grain  would 
be  moved  247  miles  for  one  dollar. 

The  disparity  between  the  Canadian  and  the  Ameri- 
can lake  ton  mile  rates  indicates  the  difference  in  the 
nature  of  the  traffic,  and  has  a  bearing  on  the  Buffalo 
movement  of  Canadian  grain.  As  has  been  pointed  out, 
93  per  cent  of  the  United  States'  traffic  carried  through 
Canadian  waterways  is  concerned  with  iron  ore  and  coal. 
Iron  ore  is  carried  down  by  the  large  freighters  from 
the  Minnesota  iron  ranges;  coal  is  carried  back.  Expe- 
dition is  desired  so  as  to  get  the  maximum  number  of 
trips  in  a  season;  coal  can  be  loaded  and  unloaded  by 
mechanical  means.  During  1912,  the  rate  on  ore  from 
the  points  of  origin  on  Lake  Superior  to  the  ports  of 
destination  on  Lake  Erie  was  55  cents  per  ton,  or  .068 
cents  per  ton  mile;  on  the  return  movement  there  is  a 
large  amount  of  empty  cargo  space  and  coal  is  carried 
at  exceedingly  low  rates — during  1912  at  80  cents  per 
ton,  or  .046  cents  per  ton  mile. 

In  the  matter  of  rates  on  water-borne  grain,  there  are 
variations  from  year  to  year,  as  well  as  from  season  to 
season.  Complaint  was  made,  for  example,  that  the  rates 
in  1918  were  higher  to  Montreal  than  to  BuflFalo.  In 
1912,  the  ton  mile  rates  worked  out  as  follows: 

May        November 

Fort  William  to  Buffalo 106  150 

"  Georgian  Bay  ports 012  .259 

"  other  Canadian  ports 099  .232 

"Montreal 147  .19S 

152.  Comparison  between  lake  and  canal  movements, 
— The  low  averages  of  the  United  States'  traflBc  to  Buf- 


542 


TRAFFIC 


falo  are,  m  the  ease  of  ore  and  coal,  held  down  by  a 
highly  speciahzed  traffic  and  the  necessity  of  obtaininff 
cargo  for  backloading  on  the  westward  and  northward 
movement.    The  grain  rates  afford  a  more  fairly  com- 
parable basis.    In  the  movement  to  Buffalo  there  is  larire 
bulk  m  large  freighters.    These  are  able  to  obtain  some 
cargo  on  Lake  Erie  either  of  coal  or  a  certain  amount  of 
package  freight.    In  the  movement  through  the  Welland 
Canal  and  on  to  Montreal,  the  physical  features  of  the 
canal  system  limit  the  maximum  through  cargo  to  80,000 
bushels;  so  the  economies  of  bulk  handling  are  not  so 
largely  present.    The  traffic  may  either  go  to  Montreal 
or  be  transhipped  at  Kingston.    In  either  case,  there  is 
the  disadvantage  that  little  westbound  cargo  offers  on 
Lake  Ontario. 

In  the  lake  movement,  short  trips  with  minimum  coal 
consumption  are  the  most  profitable.    Even  in  the  case 
of  a  vessel  which  is  able  to  pass  through  the  Welland 
Canal,  the  locking  through  takes  about  nineteen  hours. 
The  same  expenditure  of  time  would,  after  delivering 
Its  cargo  at  the  foot  of  Lake  Erie,  take  it  back  as  far  al 
the  Detroit  River.    As  between  the  movement  to  Ca- 
nadian points  and  the  movement  to  Buffalo,  it  must  also 
be  remembered  that  while  in  1912,  in  the  carriage  of 
gram  between  Canadian  ports  and  United  States  ports 
the  average  capacity  of  the  Canadian  boats  was  102  000 
bushels,  in  the  same  movement  the  average  capacity  of 
United  States'  boats  was  226,000  bushels.    In  1912  the 
insurance  rate  on  the  insurable  value  of  the  huU  cover- 
ing all  risks  from  the  head  of  the  lakes  to  the  foot  of 
Lake  Erie,  was  5|  per  cent.    An  additional  1  per  cent 
was  charged  on  the  movement  east  thereof  to  Ogdens- 
burg,  while  an  additional  1  per  cent  was  charged  on  the 
movement  east  of  Ogdensburg  to  Montreal 


INLAND   WATER   TRANSPORTATION         543 

In  comparing  rail  with  lake  and  river  rates,  it  is  urged 
that  in  the  latter  case  cognizance  should  be  taken  not 
only  of  what  the  shipper  pays,  but  also  of  what  the  gov- 
ernment contributes,  if  an  adequate  conception  of  the 
cost  of  movement  is  to  be  obtained.  Taking  into  con- 
sideration the  interest  at  8J  per  cent  on  what  has  been 
expended  on  canals  and  adding  thereto  the  annual  out- 
lay for  upkeep,  it  will  be  found  that  this  contribution 
figures  out  .140  cents  per  ton  per  mile,  which,  when 
added  to  the  actual  freight  rate  of  .194  cents,  gives  a 
rate  of  .884  cents  per  ton  per  mile  as  compared  with  an 
all-rail  rate  on  grain  of  .402  cents  from  Fort  William 
to  Montreal. 


CHAPTER  X 


FOREIGN  TRADE  AND  OCEAN  TRANSPORTATION 

153.  Canada's  foreign  trade. — Ninety  per  cent  of 
Canada's  foreign  trade  is  with  the  British  Empire  and 
the  United  States.  The  concentrated  nature  of  the  trade 
is  shown  in  the  following  percentage  summary  of  the 
trade  with  its  most  important  trade  connections: 

Per  Cent. 

British  Empire: 

United  Kingdom 30  9 

^  British  possessions 45 

United  States 55 ! 8 

Germany '  * "  j '  y 

France 1.5 

94.4 
The  export  trade  of  Canada  is  concerned  with  rela- 
tively simple  categories,  as  is  indicated  in  the  following 
percentage  summary  covering  the  five  months  ending 
August,  1913: 

Per  cent. 

The  mine jg  2 

The  fisheries go 

The  forest U  g 

Animals  and  their  products 10  7 

.     Agriculture 4Q4 

Manufactures jg "  g 

Coin  and  bullion g'g 

Miscellaneous 'g 

Putting  the  matter  in  a  summary  way,  by  articles, 
74  per  cent  of  the  export  trade  is  concerned  with  bread- 

544 


FOREIGN   TRADE   AND    TRANSPORTATION   545 


stuffs,  fish,  lumber,  fruit,  animals  living,  furs  and  skins, 
leather  and  manufactures  of,  metals  and  minerals  and 
manufactures  of,  provisions,  seeds,  coal  and  charcoal, 
paper,  drugs  and  chemicals,  stone  and  manufactures  of. 
It  thus  appears  that  it  is  for  the  most  part  a  trade  in 
bulky  articles. 

The  manufactured  products  of  Canada  were  in  the 
census  year  $1,164,695,032.  Assimiing  that  in  the  inter- 
censal  period  since  elapsed  there  was  the  same  ratio  of 
increase  as  in  the  previous  decennial  period,  it  will  be 
found  that  the  export  of  manufactures  for  1912  was  only 
2.5  per  cent  of  the  total  manufactured  product. 

154.  Imports  from  Great  Britain. — Of  the  imports 
from  Great  Britain,  the  following  articles — in  each  case 
there  being  an  importation  of  $1,000,000  orover — cotton 
and  manufactures  of,  flax,  hemp  and  jufe»  metals  and 
minerals  and  manufactures  of,  wool  and  i^piufactures 
of,  spirits  and  wines,  sugar  and  molasses,  silk  and  manu- 
factures of,  diamonds,  paper  and  manufactures  of,  fruits,- 
glass  and  manufactures  of,  gunpowder,  gutta  percha, 
hats  and  caps,  leather  and  manufactures  of,  oilcloths, 
books,  drugs  and  dyes,  earthenware,  make  up  72  per 
cent.  The  three  items,  cotton  and  manufactures  of, 
metals  and  minerals  and  manufactures  of,  wool  and  man- 
ufactures of,  make  up  47  per  cent  of  the  imports  from 
Great  Britain.  Animals  living,  grain  and  grain  prod- 
ucts, fish,  fruits,  furs  and  skins,  leather  and  manufac- 
tures of,  metals  and  minerals  and  manufactures  of,  pro- 
visions, seeds,  lumber  and  manufactures  of,  total  99  per 
cent  of  the  exports  to  Great  Britain.  The  items  of  ani- 
mals living,  grain  and  grain  products,  provisions,  and 
lumber  alone  total  84  per  cent. 

155.  United  States  imports. — Of  the  imports  from  the 
United  States,  81  per  cent  are  represented  by  animals 

C— III— M 


546 


TRAFFIC 


living,  books,  breadstuffs,  bricks  and  tiles,  carriages  and 
motors,  coal  and  coke,  binder  twine  and  cordage,  cotton 
and  manufactures  of,  drugs,  dyes  and  chemicals,  elec- 
trical apparatus,  fruit  and  nuts,  furs  and  manufactures 
of,  grease,  gutta  percha  and  manufactures  of,  hats  and 
caps,  hides  and  skins,  jewelry,  leather  and  manufactures 
of.    The  Items  of  breadstuffs— corn  being  the  important 
import— carriages  and  motors,  coal  and  coke,  cotton  and 
manufactures  of-half  of  this  is  raw  cotton-electrical 
apparatus,  fruit  and  nuts,  gutta  percha  and  manufac- 
tures of,  metals  and  minerals  and  manufactures  of,  rep- 
resent 61  per  cent.     The  principal  items  of  Canada's 
exports  to  the  United  States  are  animals  living,  bread- 
stuffs,  carriages  and  motors,  drugs  and  chemicals,  fish, 
furs,  skins  and  manufactures  of,  metals  and  minerals 
and  manufactures  of,  paper,  seeds,  lumber  and  manu- 
factures d^  These  represent  83  per  cent.    Of  the  ex- 
ports of  minerals,  five-sixths  are  concerned  with  gold 
silver,  asbestos  and  nickel.    Farm  products,  fish,  miner- 
als, and  lumber  account  for  63  per  cent  of  the  export 
trade. 

156.  From  Francc.-ln  the  imports  from  France, 
silk  and  Its  manufactures,  wool  and  its  manufactures,  and 
spirits  and  wines  are  the  most  important  single  items, 
accountmg  for  36  per  cent.    Of  the  exports  to  France 
the  most  important  single  items  are  fish  and  agricul- 
tural implements,  which  represent  79  per  cent  of  the  ex- 
ports.   From  Germany,  the  most  important  imports  are 
fancy  goods,  lace,  feathers,  etc.,  furs  and  manufac- 
tures, metals  and  their  manufactures.    These  represent 
39  per  cent.    Of  Canada's  exports  to  Germany,  84  per 
cent  are  represented  by  breadstuffs,  fish,  fruits,  and  agri- 
cultural implements. 

157.  From  Meanco.— The  trade  with  Mexico,  Central 


FOREIGN    TRADE    AND    TRANSPORTATION   547 

America,  the  West  Indies,  and  South  America  is  inter- 
esting, not  because  of  what  it  is  but  of  what  it  may  be- 
a)ine.  It  amounts  at  present  to  about  8  per  cent  of 
Canada's  trade.  The  principal  imports  are  hides  and 
skins,  copper,  sugar  and  molasses,  tobacco  and  cigars, 
manila  grass  and  fibre,  chicle  gum  crude.  The  principal 
exports  are  lumber,  fish,  breadstuff s,  coal  and  coke.  The 
British  West  Indies  constitute  the  most  important  cus- 
tomer— one-third  of  the  trade  is  done  with  them. 

158.  Canadian  tonnage. — Deducting  the  imports 
from  and  exports  to  the  United  States  to  get  a  rough 
approximation  of  the  ocean-borne  traffic,  it  will  be  found 
that  37  per  cent  of  Canada's  imports  and  65  per  cent  of 
her  exports  enter  into  ocean  traffic. 

The  registered  net  tonnage  of  ocean-going  vessels  is 
less  than  that  engaged  in  the  trade  of  the  inland  waters 
between  Canada  and  the  United  States,  the  figures  be- 
ing 24.5  and  28.8  millions  of  tons  respectively. 

Both  in  the  ocean  tonnage  and  in  the  inland  tonnage 
steam  predominates.  The  following  tabular  summary 
presents  essential  features : 

Ocean-going  tonnage  24.5  millions  of  tons  register 

Per  cent         Per  cent         Per  cent 
of  Total         of  Steam  of  Sail 

Tonnage  Tonnage  Tonnage 

British 54.21  ~,  ~~ 

Canadian 18.9/  ^^^  *^ 

Foreign 26.9  84.8  15.2 

Inland  water  tonnage  between  Canada  and  the  United 

States  28.3  millions  of  tons  register 

Per  cent         Per  cent        Per  cent 
of  Total         of  Steam  of  Sail 

Tonnage  Tonnage  Tonnage 

Canada 47.4  95.2  4.8 

United  States 52.6  88.6  11.4 


548 


TRAFFIC 


In  the  ocean  tonnage,  the  average  size  per  vessel  is 
held  down  by  the  number  of  smaller  vessels  in  the  fisher- 
ies, both  sail  and  steam. 

The  figures  of  the  coasting  trade,  which  amount  to 
66.2  millions  of  registered  tons,  should  also  be  consider,  d 

in  this  connection. 

Per  cent  Per  cent  Per  ctnt 

of  Total  of  Steam  of  Sail 

Tonnage  Tonnage  Tonnage 


86.6 
90.6 


18.4 
.4 


British  and  Canadian 95 . 6 

Foreign 4-4 

The  tonnage  of  freight  inward  from  the  sea  is  2.9 
millions  of  weight  tons,  and  .3  millions  of  measurement 
tons.  Outward,  the  figures  are  4.3  millions  and  1.4 
millions,  respectively.  By  ownership  of  vessels,  the  dis- 
tribution of  this  freight  tonnage  is  as  follows: 


INWARD 


Weight  Tons    Measurement 
per  cent  of     Tons,  per  cent 


British, 

Canadian, 

Foreign, 


49.1 

8.7 

43.2 


74.6 
2.6 

22.8 


OUTWARD 


Weight  Tons     Measurement 
of  per  cent  of  Tons,  per  cent  of 


61.9 
11.7 

22.4 


51.2 
15.3 
32.5 


159.  Ballast.— WhWe  from  the  nature  of  the  tonnage 
movements  a  great  preponderance  of  movements  in  bal- 
last inward  might  be  expected,  they  differ  but  little, 
being  27  per  cent  inward  and  24  per  cent  outward.  The 
distribution  of  the  movement  in  ballast  by  countries  in 
percentages  of  the  total  vessel  tonnage  of  each  group  is 

as  follows: 

Inward         Oviward 


British JJ 

Canadian ^ 

Foreign 30 


12 
33 
37 


FOREIGN   TRADE   AND   TRANSPORTATION   549 

Of  the  inward  movement  in  ballast,  72  per  cent  is  due 
to  lack  of  cargo  from  the  United  States  to  Canadian 
ports.  On  the  outward  movement  in  ballast  64  per  cent 
is  due  to  lack  of  cargo  from  Vancouver  and  Victoria, 
while  Prince  Rupert  and  Sydney,  Nova  Scotia,  have  7 
per  cent  and  4  per  cent  of  the  movement  out  in  ballast, 
respectively.  A  further  analysis  is  of  interest  with  a 
view  to  ascertaining  what  percentage  of  the  movement 
inbound  from  Europe  is  in  ballast,  as  the  cost  of  the  light 
movement  has  to  be  charged  against  the  total  movement 

in  and  out. 

The  United  Kingdom  with  56  per  cent  of  the  mward 
tonnage  has  4  per  cent  of  the  movement  in  ballast.  While 
on  the  inward  movement  Newfoundland  with  590,000 
tons  of  shipping  and  the  sea  fisheries  with  197,000  tons 
have  26  per  cent  and  42  per  cent  of  movement  in  ballast, 
respectively,  these  are  local  movements  which  cannot  be 
considered'as  materially  bearing  on  the  movement  from 

Europe.  • 

Taking  the  countries  of  Continental  Europe,  it  wiU 
be  found  that  Austria,  Belgium,  Norway,  Denmark, 
France,  Germany,  Holland,  Portugal,  Russia,  Spain, 
and  Sweden  have  21  per  cent  of  their  vessel  tonnage 
moving  in  ballast.  The  tonnage  of  these  countries  is  not 
especially  important  in  the  inward  movement.  It  is 
only  18  per  cent  of  the  total  foreign  vessel  tonnagv  in- 
ward. 

It  would,  therefore,  appear  that  as  far  as  movement 
inward  in  ballast  is  a  factor  in  rates,  the  lack  of  ocean 
carriage  between  United  States  and  Canadian  ports, 
which  is  in  turn  due  to  the  highly  developed  railway 
carriage  between  the  two  countries,  is  the  one  important 
factor  in  the  whole  inward  movement  in  ballast. 
160.  Principal  ports.— The  principal  ports  are  in  or- 


MO  TRAFFIC 

der  of  imports  and  exports:  Montreal,  Vancouver,  Si 
John,  N.  B.,  Halifax,  Quebec,  and  Victoria.  Of  the  ex- 
port trade,  80  per  cent  is  handled  through  Montreal, 
while  it  also  handles  26  per  cent  of  the  imports. 

These  ports  have  72  per  cent  of  the  steam  tonnage 
entering  Canada  from  the  ocean.  In  the  trade  of  these 
ports,  sailing  tonnage  is  of  minor  importance,  both  as 
to  numbers  and  size  of  vessels.  In  the  trade  of  the 
Atlantic  ports  the  steam  vessels  are  larger  than  in  the 
trade  of  the  Pacific  Coast.  The  position  of  the  dif- 
ferent ports  in  order  of  importance  as  to  tonnage  is  as 
follows: 

AMrage  Attragt 

Sisam  Saii  Size  of  Siu  of 

Nawt$  qf  Port  Veud         Tonnage      Tonnagt         Steam  iSaUing 

Tonnage       per  cent        per  cent       Veted  in  Vtttd  in 

Tone  Tone 

Vancouver 3,759,109  99. 1  .0  891  1,S49 

Victoria S.622,851  98.9  l.«  1,390  MS 

Montreal 3,S8A,951  90.1  .9  4.040  88S 

Halifax 3.111,535  97.1  S.9  2,443  \n 

Quebec 2,323.845  99.9  .1  4,573  72 

St.  John.  N.B.......  2.012,425  92.6  7.4  2,694  84 

161.  Montreal  harbor. — ^The  Harbor  Commissioners 
of  Montreal,  in  their  special  report  in  1908  on  the  de- 
velopment of  the  port,  presented  the  following  sum- 
mary of  the  situation  at  Montreal : 

a.  The  present  port  development  only  partly  takes 
care  of  the  existing  trade. 

b.  The  tonnage  has  doubled  in  five  years  and  a  vast 
increase  in  trade  is  in  sight. 

c.  Marine  insurance  rates  have  been  cut  in  two  in  the 
same  period. 

d.  Nature  has  provided  a  thousand  miles  of  magnifi- 
cent navigation  into  the  heart  of  the  continent. 

e.  Interior  ravigation  through  Canadian  canals  pro- 
vides means  of  traffic  distribution  on  a  scale  not  equalled 
by  any  other  port  in  the  world. 


FOREIGN   TRADE   AND   TRANSPORTATION   551 

f.  Direct  railway  access  is  provided  to  the  docks  at 
Montreal  for  every  railway  in  the  country  on  equal 
terms. 

g.  A  80-foot  ship  channel  now  exists  from  Montreal 
to  the  sea,  with  possibilities  of  enlarging  it  and  main- 
taining it  at  a  lower  comparative  cost  than  any  Eu- 
ropean approach  channel. 

h.  The  aids  to  navigation  throughout  a  thousand 
miles  of  water  channel  are  not  excelled  in  Antwerp, 
Bristol,  Cardiff,  Glasgow,  Hamburg,  Havre,  Liver- 
pool, London,  Manchester,  Marseilles,  and  Newcastle- 

on-Tyne. 

The  report  urged  that  the  port  development  of  Mon- 
treal should  be  planned  to  be  at  least  equal  to  that  of 
Hamburg  or  Liverpool.  There  should  also  be  a  free 
port  district  after  the  model  of  Hamburg.  In  the  free 
port  district  of  Hamburg  goods  can  be  stored,  mixed, 
improved,  or  re-manufactured,  together  with  local  raw 
materials,  within  these  limits  and  re-shipped  to  foreign 
ports  without  paying  any  duty,  or  to  domestic  ports  in 

bond. 

While  Montreal  occupies  a  commanding  place  in 
Canada's  foreign  trade,  the  trade  in  wheat  and  flour 
through  it— it  handles  80  per  cent  of  the  wheat  ex- 
IKjrted  via  Canadian  ports— is  not  in  satisfactory  shape. 
Of  wheat  and  flour  entering  into  Canada's  export  trade, 
68  per  cent  are  exported  via  Baltimore,  Boston,  New 
York,  Philadelphia,  and  Portland. 

162.  Opinion  of  Mr.  Ross.— In  commenting  on  the 
fact  that  so  large  a  part  of  the  Canadian  grain  is  moved 
by  American  channels  to  American  ports,  Mr.  W.  G. 
Ross,  the  chairman  of  the  Montreal  Harbor  Commis- 
sioners, said  recently  that,  while  in  the  period  1908  to 
1912  the  wheat  shipments  from  the  head  of  the  lakes  to 


552 


TRAFFIC 


lower  Canadian  ports  increased  about  40  per  cent,  the 
shipments  to  United  States  ports  increased  180  per 
cent.  He  said,  further,  that  while  in  1908  Canadian 
lake  cai/iers  carried  one-seventh  of  the  United  States* 
grain,  in  1912  they  carried  less  than  1  per  cent.  He 
considers  that  until  there  is  a  greater  balance  of  Cana- 
dian traffic  westbound  the  unsatisfactory  condition  is 
likely  to  continue : 

.  .  .  until  Canada  has  a  westbound  trade,  capable  of  sup- 
porting and  warranting  the  building  of  vessels  on  a  par  with 
U.  S.  boats,  she  cannot  control  the  carrying  trade  from  the 
Canadian  upper  lake  ports.  With  the  development  of  the 
package  trade  westbound  on  the  lakes  the  Canadian  vessel 
owners  built  steamers  to  control  it,  and  these  carriers  have 
been  a  factor  in  making  Montreal  a  large  grain-shipping  port 
which  can  carry  grain  cheaper  than  the  craft  that  only  gets 
a  one-way  cargo,  and  then  only  in  the  spasmodic  movement  of 
grain  sent  East  which  reaches  its  full  volume  in  spring  and 
fall  seaso'is.  Until  Canada  furnishes  a  deep  water  channel 
to  Montreal  to  tap  her  eastern  coal  fields,  and  supplies  heavy 
westbound  freight  which  is  so  essential  to  the  development  of 
the  large  carrying  capacity  lake  steamers,  equal  in  every  re- 
spect to  the  large  U.  S.  craft  and  capable  of  coping  with 
them  in  rates,  the  U.  S.  will  control  the  bulk  of  the  grain 
shipments. 

163.  Insurance  and  the  St.  Lawrence  route. — The 
harbor  of  Montreal  is  administered  by  a  board  of  three 
appointed  by  the  Dominion  Government.  One  of  the 
recommendations  made  by  the  Royal  Commission  on 
Transportation,  in  1905,  was  that  IVxontreal  should  be  a 
free  port,  at  which  there  should  not  be  any  port  or  dock 
charges  other  than  those  for  dry  dock  or  elevator  facili- 
ties. This  recommendation  has  not  been  carried  out. 
From  time  to  time  the  Harbor  Commission  raises  funds 


FOREIGN    TRADE    AND    TRANSPORTATION   55S 

for  harbor  works  and  improvements.  The  Dominion 
Government  guarantees  interest  on  such  portion  of  the 
bonded  indebtedness  as  it  from  time  to  time  deter- 
mines. In  order  to  meet  the  interest  on  the  bonded  in- 
debtedness and  meet  other  expenditures,  wharfage  rates 
are  imposed.  The  commission  finds  it  difficult  to  make 
revenues  meet  expenditures.  It  is  in  the  difficult  posi- 
tion that  if  it  attempts  through  increased  charges  to 
meet  expenditures,  it  will,  by  placing  an  additional 
burden  on  traffic,  deflect  it  to  other  ports. 

At  New  York  the  western  produce  has  reached  tide- 
water, while  at  Montreal  eighty-six  miles  must  be  tra- 
versed before  tidewater  is  reached  at  Three  Rivers.  Be- 
tween Montreal  and  the  ocean  there  intervene  the  waters 
of  the  lower  St.  Lawrence  and  the  Gulf  of  St.  Lawrence, 
wliich  entail  a  journey  of  986  miles.  While  the  Mont- 
real route  to  Liverpool  has  an  advantage  of  445  miles 
over  New  York,  there  has  to  be  considered  the  higher 
insurance  rates  consequent  upon  the  dangers  of  a  land- 
locked route,  which  minimize  the  advantage  of  the 
shorter  mileage.  The  crux  of  the  situation  is  to  be 
found  below  Montreal. 

It  would  be  of  interest,  if  space  permitted,  to  go  into 
the  history  of  the  long  and  energetic  attempt  of  the 
Canadian  government  to  improve  the  St.  Lawrence 
route.  Beginning  in  1841,  the  question  of  deepening 
the  channel  was  undertaken.  It  has  since  been  carried 
on,  with  the  result  that  there  is  a  thirty-foot  channel. 

The  underwriters  are  disposed  to  charge  up  against 
the  St.  Lawrence  route  not  only  the  accidents  in  the 
river,  but  also  those  which  take  place  in  the  gulf.  The 
government  has  carried  on  an  aggressive  policy  of  in- 
stalling lights  and  various  other  aids  to  navigation, 
which  have  greatly  increased  the  safety  of  the  route.  But 


554 


TRAFFIC 


insurance  premiums  are  still  against  the  route.  The 
following  table  presents  the  situation  for  a  period  of 
years  in  a  comparative  manner  in  connection  with  move- 
ments to  points  in  the  United  Kingdom : 


From  Montreal 

From  New  York 

Year 

Provisions 

Grain 

Provisions     Grain 

1906 — ^Average  season 

rate. 

32|c. 

32  Jc. 

15c.             17ic. 

1907 

32|c. 

32jc. 

15c.             17ic. 

1908 

32ic. 

32Ac. 

15c.             17ic. 

1909 

35c. 

35c. 

15c.             17ic. 

1910 

31§c. 

34ic. 

12|c.           15c. 

1911 

25|c. 

30c. 

12}c.           15c. 

1912 

23c. 

25ic. 

12§c.           15c. 

I 


The  rates  quoted  are  in  cents  per  $100  insured. 

There  is  also  a  similar  disadvantage  in  case  of  tramp 
steamers  with  full  cargoes  of  grain.  From  Montreal, 
the  average  season  rate  in  1912  was  61  cents,  while  from 
New  York  it  was  50  cents. 

While  there  is  a  disadvantage  in  point  of  insurance, 
it  is  a  matter  of  satisfaction  that  there  has  been  a  fairly 
steady  decrease  in  the  insurance  rates  since  1900.  Be- 
tween 1900  and  1912  the  insurance  rate  on  grain  has 
been  reduced  45  per  cent. 

164.  Subsidies  of  steamships. — Aside  from  local  and 
Canadian  coasting  steamship  services,  which  receive 
subsidies  to  the  amount  of  $305,000,  the  Dominion  of 
Canada  grants  subsidies  to  ocean-going  vessels  total- 
ing 1.9  millions  of  dollars.  The  lines  of  trade  which  it 
is  sought  to  aid  and  develop  may  be  gathered  fronf  the 
following  percentage  summary  of  the  distribution  of 
the  aid  according  to  the  leading  countries  and  routes 
assisted : 


FOREIGN   TRADE   AND   TRANSPORTATION   555 

Ttr  cent 

Canada  and  Great  Britain 87 .5 

"    South  Africa,  Australia  and  New  Zealand..  i5.5 
"    Cuba,    Mexico,    West    Indies    and    South 

America l^-S 

Canada  and  France 10-2 

"    China  and  Japan 6* 

The  general  supervision  of  the  subsidy  contracts  is 
under  the  Minister  of  Trade  and  Commerce.  The  con- 
tracts provide  for  the  number  of  voyages  per  season; 
the  ports  of  call,  and  also  additional  ports  of  call  to  be 
designated  by  the  Minister;  the  minimum  speed,  etc. 
General  provisions  of  the  contracts  may  be  summarized. 
Two-thirds  of  the  officers  and  crew  of  each  ship  are  to 
be  British  subjects;  the  ships  are  to  be  seaworthy,  and 
have  proper  acconunodation  for  comfort  and  safety. 
Provisions  are  made  regarding  the  carriage  of  mails. 
Freight  and  passenger  rates  are  to  be  approved  from 
time  to  time  by  the  Minister,  who  may  also  fix  maxi- 
mum rates.  When  freight  and  passengers  are  carried 
to  St.  John  or  Halifax,  these,  unless  otherwise  specifi- 
cally routed,  are  to  be  routed  over  the  Intercolonial, 
provided  its  rates  are  not  in  excess  of  those  of  other 
railways  from  the  same  points.  The  Minister  is  to  be 
the  final  judge  as  to  whether  the  terms  of  the  contract 
have  been  complied  with,  and  may  terminate  it  on  80 
days'  notice. 

165.  Factors  affecting  ocean  traffic  and  rates. — There 
are  two  main  classes  of  ocean  vessels — line  boats  and 
tramps.  The  first  class  consists  of  vessels  belonging  to 
a  regular  line — that  is,  a  group  of  vessels  plying  over 
the  same  route  voyage  after  voyage  and  having  more 
or  less  regular  times  of  sailing.  Tramps  have  no  reg- 
ular routes,  nor  have  they  regular  times  of  sailing,  but 
go  from  port  to  port  seeking  business.    A  tramp  is  gen- 


556 


TRAFFIC 


erally  chartered  or  hired  for  one  voyage  at  a  time,  al- 
though some  charters  cover  a  series  of  voyages  of  even 
one  year  or  more. 

Many  examples  might  be  given  of  the  variety  of 
ports  and  routes.    A  ship  left  London  with  goods  for 
Colombo,  Singapore,  and  certain  Japanese  ports.    Go- 
ing thence  to  Java,  a  cargo  of  sugar  was  loaded  for 
Xew  York.    From  New  York  it  took  merchandise  for 
twenty-six  ports  on  the  west  coast  of  South  America. 
Thence,  with  a  cargo  of  nitrate  of  soda,  the  ship  re- 
turned to  Baltimore.    It  then  proceeded  to  New  York 
to  take  on  a  cargo  of  general  merchandise  for  Australia 
and  New  Zealand.     At  least  two  years  would  elapse 
before  it  reached  its  home  port.    Another  vessel  sailed 
from  London  with  a  general  cargo  for  ten  ports  in 
Japan.    It  then  journeyed  in  ballast  to  Java,  where  it 
took  on  a  cargo  of  sugar  for  Philadelphia.     Coal  was 
taken  from  Philadelphia  to  Havana;   thence  it  sailed 
in  ballast  to  Galveston,  taking  on  a  cargo  of  cotton 
for  Liverpool.    These  journeys  covered  about  eleven 
months. 

A  Swedish  tramp  comes  in  light  into  Sydney,  Cape 
Breton.  Thence  it  journeys  around  the  Horn  with  a 
cargo  of  steel  rails  to  Prince  Rupert  for  use  in  the  con- 
struction of  the  Grand  Trunk  Pacific.  But  little  traffic 
offering  there,  it  will  then  go  south  to  Vancouver  or  to 
the  Puget  Sound  ports  looking  for  cargo. 

166.  Charter  party. — The  document  containing  the 
agreement  between  the  shipowners  and  the  charterer  is- 
called  a  charter  party.  Usually  under  it  the  owner  of 
the  ship  hires  the  officers  and  crew,  paying  their  wages 
and  providing  their  food,  while  the  other  expenses  of 
the  ship  are  paid  by  either  party,  according  to  the  terms 
of  the  charter  party.    Various  forms  of  charter  parties 


FOREIGN    TRADE    AND    TRANSPORTATION   557 

exist  in  the  trade  of  North  America,  according  to  the 
commodity  to  be  carried.  There  are,  for  example, 
forms  for  cotton,  grain,  pitch  pine,  naval  stores.  West 
Indian  fruit. 

The  terms  of  the  Anglo-American  cotton  charter 
party,  which  was  adopted  by  the  Chamber  of  Shipping 
of  the  United  Kingdom  in  1895,  may  be  referred  to 
because  of  the  importance  of  the  British  cotton  manu- 
factures. It  sets  out  the  i  -.-.e,  net  tonnage  and  class 
of  the  ship;  the  latter  affects  the  rate  of  marine  in- 
surance. On  account  of  cotton  loading  light,  the  vessel 
has  to  have  provision  for  water  ballast.  There  is  a 
guarantee  of  the  ship's  carrying  capacity.  In  order  to 
economize  cargo  space  the  vessel  sails  from  Galveston 
or  New  Orleans  to  Norfolk  or  Newport  News,  taking 
on  there  the  amount  of  coal  necessary  to  take  it  to  the 
western  coast  of  Europe.  If  the  vessel  is  going  to  the 
Baltic  it  must  take  in  further  supply  of  coal  in  the 
United  Kingdom.  The  object  is  to  lessen  the  amount 
of  space  taken  up  by  coal  on  each  portion  of  the 

journey. 

Provision  is  made  for  the  time  to  begin  loading;  also 
for  "lay  days,"  demurrage,  and  despatch  money.  Lay 
days  are  the  days  allowed  for  loading.  Demurrage, 
which  need  not  be  defined  here,  is  at  the  rate  of  4d.  per 
net  ton  for  each  free  day  after  the  expiration  of  lay 
days.  Despatch  money  is  a  payment  allowed  the  char- 
terer for  each  day  saved  in  loading  within  the  lay  day 

period. 

Provision  is  also  made  for  the  division  of  port  charges 
and  other  expenses.  The  ship  is  paid  at  a  defined  rate 
per  net  register  ton  regardless  of  the  amount  of  cargo 
loadecl.  If  not  loaded  to  full  capacity,  the  charterer 
has  to  pay,  in  addition  to  the  freight  on  the  cargo  ac- 


558 


TRAFFIC 


tuaUy  taken,  a  sum  to  cover  the  loss  due  on  account  of 
the  unused  cargo  space. 

The  charter  party  also  sets  forth  the  liability  of  each 
party  in  the  case  of  fires,  accidents,  or  strikes,  and  gives 
the  ship  permission  to  sail  with  or  without  pilots,  and 
to  deviate  from  its  course  to  aid  vessels  in  distress.  Pro- 
vision is  made  for  arbitration  of  disputes  arising  be- 
tween the  parties.  The  penalty  for  non-performance 
of  the  agreement  is  limited  to  actual  proven  damages 
not  exceeding  the  amount  of  freight  due  under  L 
charter  pa^ty. 

167.  Space  and  weight-Freight  rates  are  fixed 
either  on  the  basis  of  the  measurement  ton  of  40  cubic 
feet  or  on  the  long  ton  of  2,240  pounds.  A  vessel  may 
be  measured :  ^ 

(1)  By  its  gross  tonnage,  which  is  its  entire  cubic 
contents  as  measured  in  tons  of  100  cubic  feet- 

(2)  By  its  net  tonnage,  i.  e.,  the  gross  tonnage  less 
all  space  used  for  purposes  other  than  the  acconrnioda- 
tion  of  passengers  and  freight; 

oJ^^  ^J  u^  ^^*u  ""f^^^  ^^P*^^*^' ''  «•'  *e  weight  of 
cargo  which  may  be  loaded  without  sinking  the  vessel 

!^hrT  !.W*^''  ^"^  ^*^"*y-  The  load  lines,  as 
es  abhshed  by  the  British  Board  of  Trade,  include  one 
set  for  fresh  and  one  for  salt  water,  and  are  marked  on 
the  outside  of  the  huU  about  midv.ay  between  the  stem 
and  the  stern.    For  each  kind  of  water  there  is  a  summer 

the  ship  s  side  than  the  former. 

(4)   By  the  displacement  tonnage  which  is  the  weight 
of  ^a  ship  and  its  contents  when  immersed  to  some  fixed 

The  gross  tonnage  is  about  50  per  cent  greater  than 
the  net  tonnage;  i.e.,  a  vessel  with  a  net  tonnage  of 


FOREIGN   TRADE   AND   TRANSPORTATION   559 

3,000  tons  would  have  a  gross  tonnage  of  4,500.  The 
carrying  capacity  in  terms  of  weight  tons  is  about  50  per 
cent  in  excess  of  the  gross  tonnage;  'n  **-^  case  in  point 
it  woiild  be  7,250  tons.  The  net  tonnage  is  figured  on  the 
basis  of  100  cubic  feet  to  the  ton;  the  measured  ton 
being  40  cubic  feet,  the  measured  tonnage  capacity  can 
be  obtained  by  multiplying  the  net  tonnage  by  2i,  which 
gives  in  this  case  7,500  tons. 

The  "berth"  traffic  is  a  compromise  between  the  work 
of  a  tramp  and  of  a  line  boat.  Where  a  boat  is  put 
"upon  the  berth"  it  makes  a  special  voyage  carrying 
various  lines  of  cargo,  the  rate  being  worked  out  not 
as  a  price  paid  for  the  total  carrying  capacity  of  the 
vessel,  but  on  the  basis  either  of  the  cubic  or  of  the 
measurement  ton. 

168.  Ocean  traffic  distinguished  from  railway  traf- 
fic.— Ocean  traffic  as  distinguished  from  railway  traffic 
is  all  through  business.  The  average  haul  of  the  traffic 
passing  through  the  "Soo"  Canals  is  840  miles,  8i  times 
the  average  haul  on  Canadian  railways.  It  is  impossi- 
ble to  say  what  the  average  ocean  haul  is,  but  it  is 
manifestly  very  much  greater  than  the  lake  haul  re- 
ferred to.  In  rail  traffic,  the  relatively  small  vehicle, 
the  car,  is  the  unit;  in  ocean  or  lake  traffic  it  is  the 
vessel. 

When  in  ocean  traffic  a  vessel  is  chartered  it  is  in 
effect  a  wholesale  movement  in  trainload  lots  as  com- 
pared with  a  retail  transaction  in  car  lots  on  the  rail- 
way. Terminals,  while  on  the  whole  less  expensive  in 
ocean  business,  are  as  important  as  in  railway  business. 
The  control  of  docks  and  wharves  may  give  the  owner 
an  opportunity  to  monopolize  traffic. 

169.  Effect  of  harvests. — Ocean  rates  are  affected 
by  harvests.   Argentina  is  an  importer  of  coal.    If  there 


560 


TRAFFIC 


is  a  large  harvest,  there  must  be  a  large  volume  of  ton- 
nage moving  westward  from  Europe  to  carry  the  ex- 
port grain.  Consequently,  there  will  be  a  large  tonnage 
competing  for  the  carriage  of  coal,  which,  on  this  move- 
ment, approximates  the  position  of  paying  ballast. 
Conversely,  the.  matter  of  return  cargo  is  very  impor- 
tant. While  on  account  of  limited  exports  by  way  of 
Vancouver  and  Victoria  a  large  amount  of  tonnage 
moves  out  of  these  ports  in  ballast,  there  is  at  the  same 
time  the  opportunity  for  the  ships  so  moving  to  pick 
up  grain  cargoes  for  Europe  in  the  ports  of  the  Pacific 
Coast  of  the  United  States. 

The  increase  which  has  taken  place  in  the  size  of 
freight-carrying  ocean  vessels  may  be  indicated  by  say- 
ing that  a  tramp  may  carry  the  total  wheat  crop  pro- 
duced on  15,000  acres,  while  the  larger  freighter  can 
carry  twice  as  large  a  cargo.  The  larger  the  amount  that 
can  be  carried  by  a  vessel  the  smaller  need  be  the  por- 
tion of  cost  which  each  unit  of  the  cargo  has  to  bear. 
The  freighters  can  carry  large  cargoes  at  low  speeds  on 
an  exceedingly  economical  consumption  of  coal.  In  a 
particular  case  a  freighter  with  a  dead-weight  capacity 
of  5,000  tons,  traveling  at  the  rate  of  nine  knots  per 
hour,  used  only  20  tons  of  coal  per  day. 

170.  Conditions  of  carriage. — A  broad  distinction 
between  the  liability  in  rail  carriage  and  in  water  car- 
riage is  that,  while  in  the  former  case  the  railway  is  the 
insurer,  in  the  latter  the  consignor  or  consignee  must 
carry  his  own  insurance.  The  following  is  a  summary 
of  the  provisions  of  a  typical  Canadian  export  bill  of 
lading.  The  ocean  carrier  is  not  liable  for  loss  or  dam- 
age arising  from : 

(1)   Fire  from  any  cause  whatsoever,  barratry  of  the 


FOREIGN    TRADE    AND   TRANSPORTATION   561 


crew,  enemies,  pirates  or  robbers,  constraint  of  law, 
riots,  or  strikes; 

(2)  Explosion,  bursting  of  boilers,  breakages  of 
sliafts,  or  any  latent  defect  in  hull,  machinery,  or  ap- 
purtenances; 

( 3 )  Unseaworthiness  of  the  vessel  provided  owner  has 
exercised  due  diligence  to  make  it  seaworthy ; 

(4)  Heating,  frost,  decay,  rust,  sweat,  change  of 
character,  drainage,  leaking,  breakage,  or  by  explosion 
of  any  of  the  goods,  whether  shipped  with  or  without 
disclosure  of  the  nature  of  the  goods,  or  from  nature 
of  the  goods,  or  insufficiency  of  the  packages; 

(5)  Risk  of  craft,  hull,  or  transshipment,  or  loss  or 
damage  caused  by  the  prolongation  of  the  voyage; 

(6)  Fault  or  negligence  of  the  pilot,  master  or  crew, 
or  from  latent  or  other  defects  in  the  vessel; 

(7)  The  value  of  each  package  receipted  for  is  not  to 
exceed  $100.00,  unless  so  stated  in  the  bill  of  lading; 
unless  so  stated  the  rate  of  freight  is  to  be  adjusted  on 
the  value  stated. 

Also: 

(1)  Delivery  may  begin  on  arrival;  if  consignee  docs 
not  take  goods  from  the  steamer  directly  it  arrives  the 
goods  may  be  landed  or  put  in  store  at  the  owner's  risk 
and  expense ; 

(2)  Full  freight  is  payable  on  damaged  or  unsound 
goods;  no  freight  is  due  on  any  increase  in  bulk  or 
weight  caused  by  the  absorption  of  water  during  the 
voyage; 

3)  In  case  of  claims  for  short  delivery,  the  price 
shall  be  the  market  price  at  the  port  of  destination  on 
the  day  of  the  steamer's  entry  at  the  customs  house  less 
all  charges  saved ; 

(4)  Parcels    of    different   consignees    collected    or 

C— in— 86 


562 


TRAFFIC 


made  up  in  a  single  package  addressed  to  one  consignee 
are  to  pay  full  freight  on  each  parcel; 

(5)  If  the  goods  cannot  be  forwarded  by  the  first 
steamer  after  their  arrival  at  the  port,  they  may  be 
forwarded  by  a  later  steamer  of  the  steamship  line  or 
by  a  ?teamer  of  another  line  if  the  carrier  deems  it 
necessary; 

(6)  The  carrier  is  not  liable  for  gold,  silver,  bullion, 
specie,  documents,  jewelrj',  pictures,  embroideries,  per- 
fumeries, works  of  art,  silks,  furs,  glass,  porcelain, 
watches  or  clocks,  in  any  respect,  nor  for  goods  of  any 
description  whatsoever  above  the  value  of  $5  per  cubic 
foot. ' 

If  the  unseaworthiness  of  the  vessel  is  not  discovered 
by  the  exercise  of  due  diligence,  then  the  owner  of  the 
cargo  has  to  contribute  to  general  average  with  the 
Shipowner.  General  average  has  been  judicially  de- 
fined in  England :  "All  loss  which  arises  in  consequence 
of  extraordinary  sacrifices  made,  or  expenses  incurred, 
for  the  preservation  of  the  ship  and  cargo  comes  v/ithin 
general  average  and  must  be  borne  proportionably  by 
all  who  are  interested." 

In  February,  1898,  there  was  enacted  in  the  United 
States  the  Harter  Act,  dealing  with  the  liability  of 
water  carriers.  It  was  concerned  primarily  (1)  with 
the  prohibiting  of  clauses  which  relieve  shipowners  from 
liability  for  consequences  of  "negligence,  fault,  or 
failure  in  proper  loading,  stowage,  custody,  care  or 
proper  delivery"  of  cargo,  or  which  diminish  the  obliga- 
tion to  make  the  vessel  fit  for  the  voyage;  (2)  such 
clauses  as  exempt  shipowners  from  liability  for  conse- 
quences of  "faults  or  errors  in  navigation  or  in  the  man- 
agement" of  the  vessel  as  well  as  of  certain  other  perils, 
in  cases  where  they  have  exercised  "due  diligence  to 


FOREIGN    TRADE    AND    TRANSI'ORTATION   563 

make  the  saitl  vessel  in  all  respects  seaworthy  and  prop- 
erly manned,  equipped,  and  supplied."  But  the  ship- 
owner may  limit  the  implied  warranty  as  to  seaworthi- 
ness by  an  express  clause  in  the  bill  of  lading. 

171.  Ocean  rates  as  affecting  Canada.— On  May 
>,  1918,  Mr.  Meighen,  now  the  Solicitor-General, 
brought  to  the  attention  of  the  House  of  Commons  the 
situation  in  regard  to  ocean  rates  as  they  affect  Canada, 
lie  quoted  a  table  of  rates  on  dry  goods  from  British 
ports  to  Montreal,  pointing  out  that  between  1910  and 
1912  these  rates  had  on  particular  items  increased  from 
20  per  cent  to  60  per  cent;  and  he  drew  special  attention 
to  the  increase  in  rates  on  grain  and  flour,  emphasizing 
the  spread  between  these  commodities. 

Later  in  the  year  the  chairman  of  the  board  was  ap- 
pointed a  commissioner  to  proceed  to  £ngland  to  go 
into  the  matter  with  the  British  Government.  Hfis  re- 
port to  the  Canadian  Government  in  the  matter  has 
not  yet  been  made  public. 

The  Canadian  producer  is  vitally  affected  by  the 
spread  between  wheat  and  flour.  Between  1907  and 
1912  the  spread  as  between  wheat  and  flour  averaged 
1.52  cents  to  8.85  cents  per  hundred  pounds.  In  the 
early  part  of  1918  it  was  increased  to  7  cents. 

If  the  per  capita  consumption  of  flour  is  taken  at  5.8 
bushels,  which  is  the  average  in  the  United  States,  the 
approximately  7,500,000  people  in  Canada  will  con- 
sume 89,750,000  bushels.  The  exports  of  flour  for  1912 
were  8,378,836  barrels,  or  17,759,471  bushels.  This 
accounts  for  57,500,000  bushels  of  wheat,  or  42i  per 
cent  of  the  capacity  of  the  existing  mills  per  year. 

The  milling  capacity  of  Canada  at  the  end  of  1912 
was: 


564  TRAFFIC 

No.  of  Daily  CapatUy 

Province  Flour  Mill*  in  Barrrit 

Nova  Scotia 31  005 

New  Brunswick 47  1,755 

Prince  Edward  Island 80  735 

Quebec SO  14.610 

Ontario 362  61,183 

Manitoba 53  10,135 

Saskatchewan 41  7,480 

Alberta 33  7,845 

British  Columbia 8  1,180 

634  111,808 

Up  to  the  end  of  1918  the  daily  average  capacity  in- 
creased to  about  125,000  barrels. 

From  the  standpoint  of  the  farmer  it  is  urged  that  the 
existing  spread  as  between  wheat  and  flour  facilitates 
the  milling  of  the  wheat  in  England.  It  is  urged  that 
with  greater  milling  in  Canada  there  would  be  a  de- 
mand for  wheat  the  year  round  at  the  mills  instead  of 
the  present  congested  rush  to  the  head  of  the  lakes,  which 
congestion  breaks  the  price.  Not  only  would  such 
greater  milling  be  advantageous,  as  steadying  the  price ; 
it  would  also  have  an  advantage  from  the  standpoint  of 
diversifying  farming,  since  the  offal  would  be  available 
for  the  feeding  of  live  stock. 

172.  Lumber  rates. — Complaint  is  also  made  of  the 
increase  of  rates  on  lumber  from  Canada  to  British 
ports,  the  increase  from  1908  to  1912  being  placed  at 
approximately  40  per  cent.  On  the  import  of  crockery 
and  dry  goods  to  Canadian  Atlantic  ports  from  British 
ports  the  following  detail  is  presented: 

Winter  Winter     Summer 

1907-08  1909-10       1910       1911-19         191i-lS 

Crockery 10/ per  tun  w't  15/  17/6  80/         ««/6 

Dry  goods 15/  measurement        17/6  ««/6  85/        «7/6  in  boxes 

173.  Position  of  carriers. — A  summary  of  the  ocean 
carriers'  position  as  to  the  difference  in  rates  between 


FOREIGN    TRADE   AND   TRANSPORTATION   A65 

wheat  and  flour  may  now  be  given.  The  stevedoring 
and  handling  on  the  dock  in  Canada  per  gross  ton  and 
the  wharfage  payable  by  steamer  per  gross  ton  amount 
to  9  cents  on  grain  and  49  cents  on  flour.  A  ton  weight 
of  wheat  will  stow  in  forty-seven  feet,  while  flour  takes 
fifty-five  feet;  that  is  to  say,  on  flour  there  is  a  loss  of 
one-sixth  in  space.  Flour  is  more  valuable,  and  claims 
for  damage  thereon  average  1  cent  per  one  hundred 
pounds,  while  no  claims  arise  on  wheat.  Grain  rates 
fluctuate.  Wheat  has  often  been  carried  for  stiffening 
purposes  at  a  low  rate. 

The  low  grain  rates  are  found  in  March,  April,  Au- 
gust, and  the  first  half  of  September.  The  fluctuations 
in  March  and  April  are  due  to  the  near  approach  of 
the  opening  of  lake  navigation.  In  August  and  Sep- 
tember they  are  due  to  the  light  movement. 

Grain  can  be  loaded  at  the  rate  of  12,000  bushels,  825 
gross  tons,  per  hour.  It  takes  four  times  as  long  to 
load  and  three  times  as  long  to  unload  flour  Flour  has 
to  receive  special  stowage,  as  contact  with  certain  forms 
of  cargo — such  as  apples,  cheese,  provisions,  etc. — will 
probably  result  in  claims  for  tainting.  In  support  of 
their  contention  that  the  existing  rate  adjustment  places 
no  serious  obstacle  in  the  way  of  Canadian  flour  trade 
with  England  reference  is  made  to  the  following  figures: 

Imports  of  United  Kmgdom  from: 

(1)  Canada: 

1908 1,529,122  cwt.  of  flour 

1912 4,003,877     "     "     " 

(2)  United  States:  .,     ,.     „ 
^                1908 9,958,000     "     "     " 

1912 4,412,000     "     "     " 

174.  Rate  "conferences"— The  complaints  regard- 
ing ocean  .rates  take  especial  cognizance  of  the  "con- 
ferences"*  or   agreements   existing   as   to   rates.     The 


566 


TRAFFIC 


North  Atlantic  conference  covers  the  principal  steam- 
ship lines  from  British  and  northern  continental  ports 
to  North  America.  The  conference  arrangements,  which 
began  about  1901,  were  at  first  concerned  with  steerage 
rates,  each  company  being  allotted  a  portion  of  the  traf- 
fic. Now  they  cover  both  passenger  and  freight  rates. 
There  are  many  complaints  that  the  conference  ar- 
rangements have  made  the  importance  of  tramp  vessels 
practically  negligible  as  a  regulative  factor. 

On  the  western  movement  to  Canada  from  the  United 
Kingdom  the  Canadian  lines  in  the  North  Atlantic 
conference  issue  a  tariff  for  the  different  seasons.  The 
tariff  is  so  drafted  as  to  cover  practically  all  the  im- 
portant commodities  moving.  On  the  eastern  move- 
ment from  Canada  weekly  lists  of  rates  are  issued. 
Under  such  an  arrangement  it  is  practically  impossible 
for  the  shipper  to  make  his  arrangements  any  consid- 
erable time  in  advance. 

In  general  it  is  contended  (1)  that  there  is  very  litlle 
high-priced  package  freight  exported  from  Canada; 
(2)  that  in  exports  many  one-time  revenue-producing 
commodities  have  either  disappeared  or  are  shipped  in 
diminishing  quantities,  owing  to  increased  home  con- 
sumption, as  in  the  case  of  provisions,  or  in  imports, 
competition  of  domestic  manufactures — such  as  cotton 
goods  and  metals. 

It  is  also  contended  that  reduced  quantities  of  gen- 
eral cargo  necessitate  the  burden  being  put  on  grain, 
flour,  and  lumber,  which  are  the  only  considerable 
revenue-producing  articles. 

Reference  has  already  been  made  to  the  amount  of 
tonnage  moving  in  and  out  in  ballast.  Taking  the 
figures  o^'  the  tonnage  carrying  freight  inward  and  out- 
ward, converting  these  into  terms  of  freight  carrying 


FOREIGN    TRADE    AND    TRANSPORTATION    567 


capacity,  and  ako  expressing  measurement  tons  in 
terms  of  weight  tons,  in  accordance  with  the  calcula- 
tions already  given,  the  following  results  are  available: 


INWARD 


OUTWARD 


Freight 

Capacity 

in  MiUion* 

of  Ton* 


Meantrement 
and  Weight 

Tons 

Expressed  in 

Terms  of 

MiUion*  of 

Weight  Tons 


Percent 

of 
Capaetty 
Occupied 


Freight 

Cavaeity 

in  Millions 

of  Tons 


Measurement 
and  Weight 

Tons 

Expressed  in 

Terms  of 

Millions  of 

Weight  Tons 


Per  cent 

of 
Capacity 
Occupied 


19.1 


3.3 


11 


17.9 


S.9 


33 


175.  New  ocean  routes. — The  importance  of  grain 
in  its  export  trade  has  caused  Canada  to  concern  itself 
with  new  routes.  The  Canadian  Northern  and  the 
National  Transcontinental  will,  in  the  grain  shipping 
season  of  1914-15,  be  carrying  grain  east  to  connect 
with  the  established  rail  routes  of  Ontario.  This  will 
redress  the  evil  Sir  William  Van  Home  picturesquely 
described  when  he  said  that  Canada  had  enlarged  the 
hopper  without  enlarging  the  spout.  Every  mile  of 
line  built  west  of  Fort  WiUiam,  with  its  attendant 
opening  up  of  the  country  has,  so  far  as  the  product 
of  this  new  section  had  to  be  carried  all  rail  to  the  sea- 
board, attracted  still  further  attention  to  the  weak  link 
in  Canada's  transportation  system  —  the  single  line 
around  Lake  Superior. 

176.  Hudson  Bay  Railway.— The  Hudson  Bay 
Railway  has  been  undertaken  with  a  view  to  affording 
a  short  line  for  export  via  Hudson  Bay.  The  line  is 
now  in  process  of  construction.  What  the  traffic  for- 
tunes of  this  route  will  be  is  a  matter  of  speculation. 
No  considered  opinion  can  be  expressed.  The  grain 
moving  will  only  to  a  very  slight  extent  be  moved  out 
bv  this  route  in  the  season  in  which  it  is  harvested,  and 


568 


TRAFFIC 


will,  therefore,  have  to  be  carried  over  to  the  next  sea- 
son with  attendant  elevator  and  -nterest  charges. 

It  is  improbable  that  the  route  will  attract  tramp 
freighters.  For  a  time,  at  least,  the  great  prepon- 
derance of  traffic  being  eastbound,  the  eastbound  move- 
ment will  have,  in  great  part,  to  pay  for  the  westbound 
empty  movement.  It  would  appear  as  if  a  special  type 
of  vessel  construction  would  be  necessary  for  the  pas- 
sage through  the  straits.  Insurance  rates  are  against 
IVIontreal.  In  the  case  of  a  new  route,  like  the  Hudson 
Bay,  M^here  the  underwriters  have  not  before  handled 
risks,  they  will  undoubtedly  discount  every  possible 
risk. 

There  is  also  a  project  to  make  rhe  Hudson  Bay 
Railway  a  link  in  a  rail  and  water  route  within  Canada 
for  moving  grain  to  the  east.  The  movement  would  be 
by  rail  to  the  Bay  terminal,  thence  by  water  to  the  Not- 
taway  River,  on  James  Bay,  where  a  connection  can 
be  made  with  an  extension  of  the  Temiskaming  and 
Northern  Ontario  Railway.  The  North  Railway  has 
also  a  charter  to  build  from  this  point  to  Montreal. 

177.  Pacific  route.— MVhWe  the  Hudson  Bay  route 
attracts  the  attention  of  Manitoba  and  of  Saskatchewan, 
Alberta  and  British  Columbia  look  to  the  Pacific.  What 
the  grain  future  of  the  Peace  River  country  may  be  it 
is  difficult  to  say;  but  it  would  appear  that  grain  grown 
there  would  be  too  far  west  to  stand  the  rail  haul  to 
the  head  of  the  Lakes.  To  go  east  to  Europe,  it  wiD 
have  to  go  west  to  the  Pacific.  The  low  grade  lines  of 
the  Canadian  Northern  and  the  Grand  Tnjnk  Pacific 
which  will  be  completed  in  1914,  will  afford  outlets  at 
Vancouver  and  Prince  Rupert.  An  elevator  is  to  be 
constructed  at  the  latter  point.  Such  a  grain  movement 
will  afford  that  balance  of  export,  the  lack  of  which  is 


FOREIGN    TRADE    AND    TRANSPORTATION   569 


at  present  detrimental  to  British  Columbia's  ocean  rates. 
It  is  not  yet  clear  whether  the  grain  will  be  handled  in 
bulk,  as  on  the  Atlantic,  or  in  sacks,  as  on  the  Pacific 
Coast  of  the  United  States. 

The  export  from  British  Columbia  will,  in  part,  be 
concerned  with  the  development  of  trade  with  Japan  and 
China.  While  there  will,  no  doubt,  be  a  movement  east 
by  way  of  the  Panama  Canal,  no  considered  opinion 
can  be  expressed  as  to  the  amount  of  the  movement.  As 
against  the  Panama  route,  there  is  the  disadvantage 
that  on  account  of  the  grain  passing  through  the  warm 
liumid  climate  of  the  Panama  belt,  there  will  be  a  dan- 
ger of  the  grain  "sweating."  It  is  claimed  that  this  can 
be  overcome  by  baggi  ^',  but  this  will  add  to  the  expense 
of  carriage.  From  Montreal  to  Liverpool  is  a  distance 
of  2,939  miles  by  way  of  Cape  Race;  by  BeUe  Isle  it  is 
2,768  miles ;  from  Vancouver  it  is,  via  the  Panama  Canal, 
8,676  miles,  or  a  distance  greater  than  the  route  by  Cape 
Race  by  5,787  miles.  During  1912  the  ton-mile  rate 
from  Montreal  to  Liverpool  averaged  on  grain  0.112 
cents  or  $3.81  per  ton.  If  the  same  ton-mile  rates  were 
applied  to  the  extra  distance  from  Vancouver,  it  would 
given  an  additional  charge  of  $6.42  per  ton.  To  carry 
at  the  same  gross  rate  as  the  Montreal  route,  Vancouver 
would  need  to  have  a  ton-mile  rate  of  0.038  cents  per  ton 
mile.  This,  of  course,  is  on  the  basis  of  existing  rates. 
What  change  may  be  brought  about  by  the  increased 
ocean  tonnage  attracted  by  the  new  route,  it  is  impossible 
lo  say. 

178.  Panama  Canal. — There  is  not  only  the  question 
of  the  effect  on  rates  outward  from  British  Columbia; 
there  is  also  the  question  of  the  rate  readjustments  be- 
tween eastern  Canada  and  the  Pacific  Coast.  Profes- 
sor Emory  R.  Johnson,  who  has  been  a  member  of  the 


570 


TRAFFIC 


Panama  Canal  Commission,  and  who  is  the  acknowl- 
edged expert  on  the  traffic  and  rates  of  the  Panama 
route,  estimates  that  probably  less  than  20  per  cent  of 
the  trade  of  the  Pacific  Coast  of  the  United  States, 
going  east  by  rail,  reaches  points  east  of  Buffalo.  The 
direct  influence  of  the  canal,  so  far  as  the  United  States 
is  concerned,  will  be  on  the  coast  to  coast  traffic.  This 
traffic  is  only  about  20  per  cent  of  the  total  traffic  of 
the  United  States,  and  it  is  already  affected  by  water 
competition. 

It  is  probable;  however,  that  the  influence  of  the  water 
competition  will  be  felt  to  a  considerable  distance  west 
of  the  Atlantic  seaboard.  Again,  it  is  estimated  that 
fruits  can  be  handled  through  the  canal  from  Calif cnia 
to  New  York  in  fifteen  days.  On  a  movement  of  or- 
anges to  Buffalo,  there  would  be  the  rail  haul  to  San 
Pedro,  steamer  to  New  York,  and  thence  by  rail  to 
Buffalo.  High-grade  commodities  may  be  attracted 
to  the  water  route  by  an  actual  shortening  in  the  ship- 
ping time;  the  average  rail  movement  oi  freight  from 
New  York  to  San  Francisco  now  requires  thirty  days. 

Professor  Johnson  summarizes  his  position  as  to 
probable  changes  in  trade  routes  as  follows: 


1.  The  Atlantic  section  of  the  United  States  will  obtain  a 
somewhat  larger  share  of  the  trade  of  the  Pacific  Coast,  and 
will  secure  more  benefit  from  the  cheap  water  route  than  the 
Middle  West. 

2.  Inroads  on  the  trade  of  the  Middle  West  will  not  be  seri^ 
ous,  because: 

(a)  The  Middle  West  has  now  an  established  hold  on 
Pacific  Coast  trade. 

(b)  Aided  by  changed  rail  rates,  they  can  probably 
compete  with  the  Atlantic  Coast.  The  Middle  West 
will  lose  a  part,  not  all,  of  its  trade  with  Pacific  sea- 


FOREIGN    TRADE    ASiS    TRANSPORTATION   571 

board  cities,  but  may  hold  its  Inter-Mountain  trade. 

(c)  Rail  lines  east  of  the  Alleghany  Mountains  may  make 
special  rates  from  the  back  region  to  the  Atlantic  for 
Western  traffic.  Rail  lines  to  the  Gulf  will  draw 
traffic  from  Kansas  City,  Memphis,  and  St.  Louis. 

(d)  Chicago  and  cities  of  this  region  may  be  assisted 
in  building  up  the  Inter-Mountain  trade  by  tlie  rail- 
roads. 

3.  The  canal  will  assist  the  Pacific  States  in  trading  with 
tlie  Eastern  and  Southern  parts  of  the  United  States. 

It  will  appear,  then,  that  one  must  speak  with  hesi- 
tation as  to  the  definite  effects  on  Canadian  rail  rates 
of  the  new  route.  In  eastern  Canada,  the  maximum 
rates  from  interior  points  to  the  Pacific  Coast  will  be 
held  down  by  the  rates  to  the  Atlantic  seaboard,  plus 
the  seabia  d  rates  to  the  coast.  This  will  bring  about 
various  readjustments  in  the  basis  of  rates. 

Between  Sudbury  and  Winnipeg  there  is  in  general 
at  present  a  break  in  productive  and  distributive  terri- 
tory, broken  only  by  the  two  centers  of  Fort  William 
and  Port  Arthur.  In  the  United  States  there  is  not  the 
same  gap. 

In  British  Columbia  the  rates  to  interior  points  are, 
as  has  been  indicated,  built  up  on  the  "pull-back"  sys- 
tem. If  the  compelled  rates  to  the  coast  are  reduced 
still  lower  by  the  competition  of  the  new  route,  the  com- 
bination of  the  coast  rate  plus  the  local  back  will  be  effect- 
ive as  a  maximum  still  further  east,  thereby  controlling 
the  direct  rates  from  eastern  Canada  to  such  points. 
While  it  does  not  follow  that  the  local  rates  will  be  au- 
tomatically reduced,  it  is  probable  that  the  result  will 
l)e  to  increase  the  distributing  territory  of  the  Pacific 
Coast  cities.  Possibly  there  may  be  a  blanketing  some 
distance  east  from  the  coast. 


572 


TRAFFIC 


J  3 


if 


Such  a  readjustment  will  bring  before  the  railways 
the  question  of  a  readjustment  of  the  relationships  be- 
tween the  various  distributing  centers  of  the  prairie 
provinces.  Again,  the  trade  competition  between  dis- 
tributing centers  in  eastern  Canada  and  those  in  the 
prairie  provinces  will  bring  before  the  railways  the 
question  of  further  readjustments.  How  it  will  work 
out  it  is  impossible  to  foretell. 

If  ocean  shipping  and  freight  tonnage  are  attracted 
in  increased  amount  to  British  Columbia,  this  and  the 
development  of  grain  areas  nearer  the  coast  may  affect 
grain  rates  as  far  east  as  a  line  drawn  north  and  south 
through  Regina,  at  which  point  the  competition  of  the 
Hudson  Bay  route  will  be  a  factor.    This  would  mean 
that  the  Fort  William  rate  and  the  coast  rate  would 
meet  about  this  point.    There  will  probably  be  a  certain 
zone  of  indifference  about  this  line  from  which  grain 
may  move  east  or  west  according  to  variations  in  rates. 
It  must  be  recognized  throughout  that  any  opinions  as 
to  probable  readjustments  will  have  to  be  checked  by 
experience.     It  is  impossible,  however,  to  bi*ing  about 
rate  readjustments  in  general  rates  in  one  section  with- 
out vitally  affecting  rates  in  adjacent  areas. 

The  Tehuantepec  route  has  been  overshadowed  by  the 
discussion  concerning  the  Panama  Canal.  The  former 
route,  which  has  been  in  operation  since  1907,  has  the 
following  distances:  From  New  York  to  San  Fran- 
cisco via  this  route  is  4,626  miles;  the  rail  journey  across 
the  Isthmus  is  192  miles;  from  Montreal  to  Vancouver 
the  distance  is  6,992  miles  as  against  the  all-rail  route 
of  2,897  miles;  from  Halifax  to  Vancouver  via  this  route 
is  6,001  miles. 

This  route  is  undoubtedly  a  factor  to  be  considered 
in  the  rate  situation.    To-day  articles  are  laid  down  from 


FOREIGN    TRADE    AND    TRANSPORTATION    573 

Antwerp,  via  this  route,  in  Vancouver  in  45  days, 
(loods  from  Michigan  move  to  the  Atlantic  Coast  and 
thence,  via  this  route,  to  the  Pacific  Coast  of  the  United 
States.  It  has  the  advantage  of  being  one  thousand 
miles  shorter  than  the  Panama.  It  is  probable  that  with 
the  opening  of  the  latter  route  package  freight  move- 
ment of  the  former  to  the  Pacific  Coast  of  North  Amer- 
ica will  be  much  curtailed. 

While  it  has  the  disadvantage  of  being  a  break  bulk 
movement,  this  does  not  entirely  rule  it  out  of  the  run- 
ning as  a  grain  route.  The  haulage  of  grain  across 
the  Isthmus  of  Tehuantepec  would  aid  in  aerating  it  and 
so  assist  in  rendering  possible  a  bulk  movement.  With 
improved  loading  and  unloading  devices,  hopper  bottom 
cars,  etc.,  unloading  direct  mto  the  vessels  at  the  Atlan- 
tic terminal,  costs  could  be  reduced.  The  Panama  Canal 
will  be  a  steamer  route.  Sailing  vessels  can  make  the 
termini  of  the  Tehuantepec  route.  With  improved  fa- 
cilities there  may,  if  a  considerable  bulk  of  grain  moves 
via  the  Pacific  Coast,  be  an  appreciable  movement  by  the 
Tehuantepec. 

The  advocates  of  the  Panama  route,  however,  see  only 
a  local  future  for  the  Tehuantepec,  primarily  in  connec- 
tion with  the  coastwise  movement  up  and  down  the 
coast  of  Mexico  and  of  Central  America.  The  criti- 
cism from  this  standpoint  is  summarized  in  the  words 
of  Professor  Johnson,  M^ho  says: 

These  differences  in  distance  will  not  enable  the  Tehuantepec 
route  to  compete  with  the  Panama  Canal.  The  average  cost  of 
transferring  freight  from  the  hold  of  a  ship  on  one  side  of  the 
Isthmus  of  Tehuantepec  to  the  hold  of  a  ship  on  the  other  side 
could  hardly  be  brought  below  $2.50  per  ton.  ...  A  toll  at 
Panama  of  $1.00  per  vessel  ton,  net  register,  would  amount  to 
about  50c.  a  ton  on  cargo ;  and  thus  the  cost  of  getting  cargo 


574 


TRAFFIC 


from  ocean  to  ocean  would  be  at  least  $2  per  ton  greater. 
The  double  handling  of  commodities,   with   the  unavoidable 
breakage  and  damage  incident  thereto,  would  further  place  the 
Tehuantepec  route  at  a  disadvantage  in  competing  for  traffic 
agamst  the  through  service,  without  breaking  bulk,  by  way  of 
the  canal.     Moreover,  the  time  required  to  handle  freight  from 
^ew  York  to  San  Francisco  would  be  but  little  less  via  Tehuan- 
tepec than  via  the  canal.     As  vessels  require  about  two  days 
to  discharge  and  two  to  load,  the  average  detention  of  traffic, 
due  to  transfer  from  ocean   to  ocean  across  the  Isthmus  of 
Tehuantepec,    will    be    about    four    days.     A    ship    can    pass 
through  the  canal  in  less  than  half  a  day;  and  should  another 
half  day  be  taken  for  coaling,  the  total  detention  will  not 
exceed  one  day. 


h 


ii¥' 


QUIZ  QUESTIONS 

( The  numbers  refer  to  the  numbered  sections  in  the 

text) 

PART   I.   SELLING  AND  BUYING 


CHAPTER   I 

1.  Discuss  the  importance  of  selling  methods  in  a 
factory.  Why  is  the  problem  becoming  more  difficult 
of  solution?  What  influence  have  modern  competition 
and  advertising  on  the  question  of  distribution? 

2.  Name  the  six  factors  in  the  former  distribution 
methods.    Which  have  lost  their  distinctive  functions? 

8.  Define  consumer.  What  difficulties  may  arise  in 
deciding  who  is  a  consumer? 

4.  Define  retailer.  How  is  he  different  from  the  dis- 
tributor? 

5.  What  is  a  jobber?  What  was  the  early  distinc- 
tion between  a  jobber  and  a  wholesaler?  What  is  the 
difference  to-day?  Is  this  distinction  generally  recog- 
nized? 

6.  What  does  the  term  "manufacturer"  include?  Are 
the  following  manufacturers:  Farmer,  miller,  baker, 
publisher,  the  one-man  factory,  the  American  Toba».^Q 
Company?  How  may  a  manufacturer  have  no  part  in 
the  problem  of  distribution? 

7.  When  may  a  business  house  be  a  wholesaler  as 
weU  as  a  manufacturer?   What  is  a  semi-jobber?- 

8.  What  are  the  two  phases  of  the  problem  of  selling? 

575 


576 


QUIZ   QUESTIONS 


With  which  one  is  the  retailer  most  concerned?  How 
is  his  market  determined?  What  are  the  three  ways  of 
distributing  goods  at  retail  ? 

9.  Ex[)laiii  why  the  early  traveling  merchants  may 
be  considered  as  the  originators  of  the  merchandising 
system  ? 

10.  What  is  the  characteristic  feature  of  the  peddler's 
business?  What  is  the  advantage  of  the  business  and 
why  is  it  limited? 

11.  What  are  the  advantages  and  disadvantages  of 
selling  thiough  a  canvasser?  When  may  this  method  be 
successfully  employed?  Must  it  always  be  on  a  small 
scale? 

12.  What  is  a  specialty  salesman?  How  is  he  dis- 
tinguished from  the  canvasser?  Give  an  example  of  a 
specialty  salesman.  In  what  lines  of  business,  for  ex- 
ample, are  specialty  salesmen  necessary? 


CHAPTER   II 

18.  Describe  the  historic  development  of  the  retail 
store.  What  is  meant  in  the  text  by  the  "typical  retail 
store"?    How  is  it  limited? 

14.  State  seven  advantages  of  selling  through  a  retail 
store.  Discuss  these  in  detail.  How  may  the  retail 
store  often  hold  its  trade?  How  may  it  be  a  factor  in 
the  community?  Why  may  it  be  more  liberal  in  grant- 
ing credit  than  the  larger  houses? 

15.  State  four  disadvantages  of  selling  through  a  re- 
tail store.  Why  is  the  growth  of  trade  limited?  Is  it 
affected  by  competition  with  the  mail-order  houses? 

16.  Why  are  generalizations  impossible  concerning 
the  relative  advantages  of  the  retail  store  and  the  mail- 


QUIZ   QUESTIONS 


577 


order  house  in  respect  to  cost  of  distribution?    Where, 
if  at  all,  does  the  advantage  of  the  latter  lie? 

17.  Why  do  some  manufacturers  prefer  to  sell  to 
jobbers?  What  effect  does  buying  capacity  have  on 
the  price?  In  what  one  way  does  a  large  mail-order 
house  have  more  advantage  than  a  retail  store?  When 
may  the  latter  be  quite  as  successful  in  getting  prices  f 

18.  Discuss  the  development  of  the  mail-order  sys- 
tem. What  two  commercial  developments  have 
fostered  its  growth? 

19.  State  nine  advantages  of  retail  selling  by  the 
mail-order  method.  Is  the  field  limited?  Why  do  lo- 
cal business  depressions  not  affect  it?  How  may  ex- 
penses be  decreased?  Is  credit  given  by  mail-order 
houses? 

20.  What  part  does  advertising  play  in  the  mail- 
order business?  What  sort  of  opposition  as  well  as 
competition  must  be  met?  Would  the  parcels  post  be 
of  advantage  to  mail-order  houses?  State  four  disad- 
vantages of  retail  selling  by  mail-order  method. 

21.  May  the  three  methods  of  retail  selling  be  com- 
bined? If  so,  can  it  be  done  only  by  the  larger  houses? 
What  are  the  advantages  of  such  combination? 


CHAPTER  III 

22.  Why  is  it  usually  inadvisable  for  the  jobber  to 
try  to  sell  both  to  dealers  and  to  consumers  in  the  same 
locality? 

23.  State  two  methods  of  wholesale  selling.  Which 
is  the  more  common? 

24.  What  advantages  does  the  jobber  get  by  sell- 


578 


QUIZ  QUESTIONS 


ing  through  representatives?  Discuss  in  detail.  How 
do  the  salesmen  help  in  collections,  in  getting  infonna* 
tion,  in  gaining  the  confidence  of  the  buyer  and  making 
large  sales? 

25.  What  are  the  advantages  of  wholesale  selling  by 
mail?  Whftt  risks  of  selling  through  salesmen  are 
avoided? 

26.  Why  is  the  combination  of  the  two  methods  par- 
ticularly desirable? 


CHAPTER   IV 

27.  What  particular  selling  problems  had  the  manu- 
facturer? What  are  the  only  problems  of  the  retailer 
and  of  the  jobber? 

28.  Why  is  it  important  for  the  manufacturer  to 
choose  the  class  to  which  he  sells?  Why  is  a  definite 
policy  necessary  for  success? 

29.  What  are  the  two  chief  factors  in  the  determina- 
tion of  the  market? 

80.  Give  two  examples  of  industries  where  it  is  bet- 
ter for  the  manufacturer  to  deal  directly  with  the  re- 
tailer. 

81.  Discuss  the  business  policy  of  selling  only  through 
jobbers.  Why  have  some  manufacturers  ceased  sell- 
ing to  middlemen?  What  class  of  manufacturers  pre- 
fer to  sell  to  distributers  and  to  consumers,  and  why? 
Discuss  these  questions  in  relation  to  the  grocery,  the 
iron  and  steel,  and  the  publishing  companies. 

32.  State  and  explain  three  advantages  of  selling 
only  through  jobbers. 

33.  State  and  explain  three  disadvantages. 

84.  How  may  the  market  be  better  determined  in  a 


QUIZ   QUESTIONS 


579 


direct  sftle  to  the  retailer?  How  is  the  manufacturer 
knefited  by  direct  relations  with  the  retailer?  Give 
another  advantage  of  such  direct  sales. 

33.  What  opposition  is  met  when  a  manufacturer 
sells  to  the  retailer?  Give  and  explain  two  disadvan- 
tages of  such  sales. 

86.  Wlien  is  it  advantageous  for  the  manufacturer  to 
sell  directly  to  the  consumer?  Give  at  least  two  in- 
stances. 

87.  What  are  the  objections  to  a  "direct  to  con- 
sumer" business? 

88.  Discuss  the  methods  by  which  a  manufacturer 
may  reach  his  market  when  he  sells  to  jobbers,  to  re- 
tailers, to  the  consumer. 

89.  Why  is  there  a  tendency  to  eliminate  the  mid- 
dleman? Show  that  this  tendency  is  growing.  Give 
three  reasons.    Explain. 

40.  Is  the  jobber  likely  to  disappear  from  the  mer- 
chandising system?  What  effect  has  he  on  the  small 
retail  store?    Discuss  carefully. 

41.  Define  agent,  commission  merchant  and  broker. 
Where  in  the  line  of  distribution  do  they  come?  Have 
they  any  peculiar  selling  problems?  State  four  rea- 
sons for  a  manufacturer  using  the  agent,  etc.,  rather 
than  a  selling  organization  of  his  own. 


CHAPTER  V 

42.  Discuss  in  detail  the  organization  of  the  sales  de- 
partment. How  are* its  characteristics  determined?  Is 
there  any  typical  retail  or  wholesale  selling  organiza- 
tion?   Is  the  market  to  be  reached  of  importance? 

48.  What  are  the  three  methods  of  selling  goods  at 


580 


QUIZ   QUESTIONS 


retail?    What  two  of  them  may  be  combined?    De- 
scribe the  organization  of  the  department  store. 

44.  What  are  the  duties  of  the  merchandise  manager? 
What  authority  has  he?  Is  he  concerned  with  the  sale 
of  goods?  Are  his  duties  different  in  a  factory?  How 
are  knowledge  and  ability  best  acquired? 

45.  Vho  are  the  buyers  in  a  small  establishment,  in 
a  depai  cu  mt  store?  Have  they  any  relations  with  the 
merchandise  manager?    What  are  their  duties? 

46.  Are  the  sales  people  ever  connected  with  the  buy- 
ing end  of  the  business?  To  whom  are  they  responsi- 
ble?   Who  directs  them?    By  whom  is  he  assisted? 

'.<7.  Are  the  floor-walkers  ever  responsible  to  the 
buyers?  By  whom  are  they  commonly  directed? 
What  are  their  duties?  Who  is  the  sales  manager? 
Discuss  his  duties  in  relation  to  those  of  the  merchandise 
manager.  Will  there  ever  be  a  definite  division  between 
the  buying  and  the  selling  functions  in  a  retail  store? 

48.  Discuss  the  relations  between  the  advertising  and 
the  sales  departments.  What  is  the  ordinary  custom? 
Where  does  the  authority  of  the  advertising  and  of  the 
sales  manager  often  conflict?  What  is  the  tendency 
to-day? 

49.  Describe  a  selling  organization  for  a  wholesale 
house.    Is  there  any  typical  organization? 

50.  Where  there  is  departmentation  in  a  wholesale 
house,  what  official  has  charge  over  all  the  department 
heads?  What  is  his  authority,  and  what  relations  has 
he  to  the  buying  and  to  the  selling  functions  ? 

51.  What  are  the  duties  of  a  department  head? 

52.  Why  are  specialty  salesmen  necessary?  By 
whom  are  they  super\nsed? 

53.  Explain  in  detail  the  duties  of  the  general  sale' 
men,  by  whom  they  are  controlled,  etc.    Upon  who. 


QUIZ    QUESTIONS 


581 


should  the  final  responsibility  for  all  directions  rest? 
What  are  the  usual  three  classes  of  salesmen?  Explain 
the  duties  of  each.  If  there  is  a  mail-order  department, 
to  whom  is  the  mail-order  manager  responsible?  Is 
such  a  man  necessary  in  a  wholesale  house? 

54.  What  are  the  advertising  methods  of  a  jobber? 
Is  an  advertising  manager  usually  employed  ? 

55.  Of  what  importance  to  a  wholesale  house  is  the 
credit  man?  Does  the  scheme  of  selling  organization 
confine  itself  to  the  relations  of  functions  or  of  indi- 
viduals? Explain  your  answer.  Name  four  charac- 
teristics of  every  largely  successful  house. 


By 


CHAPTER  VI 

56.  What  are  the  three  classes  of  customers  for  a 
manufacturer?  Why  can  we  have  no  typical  method  of 
selling  organization?  If  a  manufacturer  reaches  all 
three  classes,  what  must  his  selling  organization  con- 
tain? 

57.  How  does  a  manufacturer's  selling  organization 
differ  from  that  of  a  wholesale  and  of  a  retail  store?  In 
a  factory  are  the  buying  and  selling  functions  closely 
connected?  What  is  the  basis  of  departmentation,  if 
there  is  any? 

58.  In  a  manufacturer's  organization,  what  are  the 
duties  of  the  sales  manager?  To  whom  is  he  responsi- 
ble? 

59.  Who  is  directly  responsible  for  the  salesmen?  If 
lie  has  subordinates,  who  are  they? 

60.  When  are  specialty  salesmen  employed  by  a 
manufacturer?  Where  is  the  place  of  all  salesmen  in 
the  scheme  of  organization? 


582 


QUIZ    QUESTIONS 


61.  Describe  the  organization  of  branch-houses? 
What  are  the  functions  of  the  typical  branch-house? 

62.,  What  is  the  agent?  Is  he  on  the  manufacturer's 
pay-roll?  Is  the  manufacturer  further  interested  when 
goods  have  been  taken  by  an  agent  ? 

63.  Does  a  manufacturer  ever  operate  his  own  retail 
store?    If  so,  describe  its  organization. 

64.  What  is  the  place  of  the  mail-order  department 
in  a  factory? 

65.  Discuss  the  relations  of  the  sales  and  the  advertis- 
ing departments.  What  is  the  purpose  of  commercial 
advertising?  Why  is  it  disadvantageous  for  the  adver- 
tising manager  to  be  subordinate  to  the  sales  manager? 
Is  advertising  selling?? 

66.  Why  are  the  credit  and  the  traffic  departments 
not  essential  parts  of  the  selling  organization?  What  is 
the  main  purpose  of  the  credit  man,  of  the  traffic  man? 
When  do  their  duties  begin? 

67.  What  modifications  of  the  organization  plan 
given  may  be  made  when  the  manufacturer  does  not 
sell  to  consumers  or  to  retailers? 


CHAPTER   VH 

68.  How  does  the  efficiency  of  the  sales  department 
reach  its  highest  development?  How  may  co-operation 
between  departments  be  encouraged? 

69.  Explain  the  importance  of  the  human  factor  in 
gaining  co-operation.  How  should  the  sales  manager 
treat  his  subordinates?  How  may  tact  be  encouraged 
in  the  business  organization  ? 

70.  How  may  the  employes  be  made  to  take  a  direct 
interest  in  the  business  as  a  whole?  Will  profit-sharing 
accomplish  this?    Discuss  carefully. 


QUIZ   QUESTIONS 


583 


71.  What  is  the  committee  system?  Will  it  induce 
co-operation?  What  does  it  accomplish,  and  how? 
Can  it  be  used  by  manufacturers  and  by  wholesalers  as 
well  as  by  retailers?  Which  organization  has  applied  it 
most  effectively? 

72.  What  is  the  executive  committee?  Is  it  more 
important  than  the  other  committees?  Of  what  officials 
is  it  composed?  What  may  it  do  with  matters  brought 
before  it?  Does  it  aid  co-operation?  To  whom  is  it 
responsible?  Discuss  the  executive  committee  of  a  cor- 
poration. 

78.  Who  makes  up  the  factory  committee?  What 
representative  should  it  certainly  inchide?  Of  what 
value  is  it  in  co-operation? 

74.  What  is  the  sales  committee?  What  departments 
are  represented?  Discuss  the  majority  rule  as  ap- 
plied here.  What  is  brought  before  the  sales  com- 
mittee? 

75.  Describe  the  advertising  committee.  What  au- 
thority has  it? 

76.  Who  makes  up  the  office  coinmittee?  How  is  the 
sales  department  represented? 

77.  What  is  the  conunittee  of  principal  employes? 
What  is  its  purpose?  How  may  it  be  effective?  Dis- 
cuss the  system  of  committee  organization. 

78.  What  objections  may  be  urged  against  the  com- 
mittee system?    What  are  its  practical  results? 


CHAPTER  VIII 

79.  Discuss  the  purpose  of  the  selling  campaign. 
How  does  departmental  co-operation  help?  Why  has 
the  retailer  the  least  difficult  problem  to  solve? 


584 


QUIZ   QUESTIONS 


80.  Wliat  one  feature  is  common  to  almost  all  sellinff 
campaigns?  In  the  campaigns  of  mail-order  houses, 
now  important  is  advertising? 

81.  What  are  the  four  main  qualifications  of  a  sales 
manager?  Should  he  be  drawn  from  amongst  the  sales- 
men?   State  his  general  duties. 

82.  How  is  the  sales  manager  able  to  choose  an  ef- 
ficient selling  force?  Should  he  decide  purely  by  in- 
clination? F       >     y  m 

83.  How  may  system  aid  in  the  selection?  Give  a 
list  of  questions  to  be  asked  applicants.  How  are  refer- 
ences looked  up?  What  questions  are  asked  his  former 
employers? 

84.  What  may  be  decided  by  a  personal  interview? 
«5.  Of  what  importance  is  the  question  of  appear- 
ance?   Do  clothes  matter? 

86.  How  much  importance  should  be  given  to  con- 
versational ability? 

87.  Should  a  salesman  know  more  than  just  his  line? 


CHAPTER   IX 

88.  Discuss  in  detail  the  training  of  salesmen.  Can 
goods  be  sold  to-day  simply  on  the  personality  of  the 
salesman?  In  what  three  principles  should  the  sales- 
man be  trained? 

89.  Is  there  a  science  of  salesmanship?  If  so  how 
may  it  be  learned?  Is  selling  experience  all  that  is 
necessary  to  make  a  good  salesman? 

90.  Of  what  importance  to  the  salesman  is  a  thorough 
knowledge  of  his  line?  How  are  prospective  buyers  ap- 
proached  to-day? 


QUIZ    QUESTIONS                            865 

91.  Give  and  explain  three  methods  of  training  sales- 

men. 

92.  What  are  the  two  advantages  of  having  salesmen 
employed  in  the  factory  previous  to  making  sales? 
Discuss  in  detail. 

93.  How  may  a  salesman  be  trained  in  selling 
methods?    Of  what  advantage  is  this? 

94.  How  are  the  standard  selling  talks  prepared? 
Of  what  advantage  are  they? 

95.  How  may  the  standard  selling  talks  be  adapted 
for  a  variety  of  uses?     What  is  the  "school-room"? 

96.  How  are  the  retail  stores  training  their  salesmen? 
Why  have  the  jobbers  been  slow  to  follow?  How 
may  the  sales  manager  keep  his  men  efScient? 


CHAPTER   X 

97.  How  should  the  salesman  be  supervised?  Ex- 
plain carefully. 

98.  State  five  ways  of  assisting  the  salesman  in  mak- 
ing particular  sales. 

99.  State  several  means  of  interesting  the  salesman 
in  general  activities. 

100.  What  is  the  importance  of  personal  relations 
between  the  sales  manager  and  the  salesman  ? 

101.  How  may  the  manager  keep  in  touch  with  sales- 
men? What  care  should  be  used  in  making  necessary 
reprimands? 

102.  Do  competitive  schemes  promote  selling  effi- 
ciency? What  is  the  quota  system?  How  is  it  used? 
What  are  the  difficulties  in  its  use  by  jobbers?  How 
may  these  be  avoided?  When  is  the  system  of  chief 
value? 


586 


QUIZ   QUESTIONS 


1C3.  Show  how  house  organs  may  be  valuable  aids 
in  the  selling  organization. 

104.  Give  four  purposes  for  having  selling  confer- 
ences.   Explain  the  value  of  each. 

105.  Besides  the  supervision  of  salesmen,  what  are 
the  three  main  duties  of  the  sales  manager? 

106.  How  are  salesmen  compensated?  Which 
method  of  compensation  furnishes  the  greater  in- 
centive to  the  salesman?    Which  is  usually  employed? 

107.  How  are  salesmen's  expenses  to  be  treated? 
Discuss  several  methods.  Should  a  salesman  "buy 
business  "? 

108.  How  should  territories  be  assigned  to  salesmen? 
What  is  the  limitation  of  the  population  unit  of  assiim- 
ment? 

109.  How  may  the  manager  keep  in  touch  with  his 
men?    IJiscuss  various  means. 

110.  Why  is  knowledge  of  the  business  important  for 
the  sales  manager?    What  is  meant  by  this  phrase? 


CHAPTER  XI 

111.  What  are  credit  reports?  How  are  they  pre- 
pared?   Why  are  they  important  in  selling? 

112.  State  the  five  purposes  of  the  direct  reports 
from  the  salesmen.  What  data  in  the  reports  tends  to 
accomplish  these  purposes? 

113.  Give  the  material  contained  in  a  typical  report. 
Of  what  value  is  this  to  the  manager? 

114.  To  what  extent  must  the  salesman's  power  of 
observation  be  trained?  Upon  what  items,  outside  of 
his  particular  line,  should  he  report?    Of  what  value  to 


QUIZ   QUESTIONS 


587 


the  manager  is  such  information?    What  is  the  most 
important  result  of  a  careful  study  of  the  report? 

115.  What  is  a  town  record  card?  Explain  its  use. 
What  information  is  entered  upon  it?  Discuss  an  effi- 
cient statistical  system. 

116.  What  is  the  salesman's  share  in  promoting  the 
efficiency  of  the  sales  department?  What  are  the  three 
th'ngs  expected  of  the  salesman?    Discuss  in  detail. 


CHAPTER  XII 

117.  What  is  salesmanship?  Explain  its  purpose, 
features  and  duties. 

118.  What  is  a  salesman?  May  the  owner  of  a  plant 
be  a  salesman;  the  advertiser;  the  manufacturer;  the 
promoter? 

119.  What  are  the  four  main  steps  in  a  sale? 

120.  Describe  various  methods  of  attracting  the 
buyer's  attention.  Should  a  customer  be  approached 
on  his  "blind  side"? 

121.  Having  attracted  the  customer's  attention,  how 
may  his  interest  be  held?  What  is  the  value  of  specific 
language?  Should  the  customer's  point  of  view  h^  ob- 
tained? 

122.  How  may  the  customer  be  induced  to  want  the 
goods  offered?  What  is  the  best  method  of  argument? 
How  may  suggestion  be  used  in  the  salesman's  argu- 
ment? 

128.  How  may  the  salesman  close  the  sale?  How 
may  he  retain  the  customer's  good-will?  What  is  the 
"psychological  moment"? 

124.  What  is  the  importance  of  these  steps  in  a  sale? 


588 


QUIZ   QUESTIONS 


Must  the  salesman  be  conscious  of  them?    Why  should 
they  be  studied?  ^ 


CHAPTER   XIII 

125  What  are  the  three  factors  in  a  sale?  Explain 
the  relation  between  the  factors  and  the  steps  in  a  sale 

126.  Is  the  personality  of  the  salesman  important? 
Must  a  salesman  be  born  and  not  made?  What  are  the 
essential  qualities  of  a  successful  salesman? 

127.  What  are  some  false  incentives  toward  enter- 
ing the  business?   What  is  the  true  incentive? 

^?;  '^^J^''^  ^''*^"*  ^*^«  «"«^ess  depend  upon  the 
mental  ability  of  the  salesman?    Is  will  power  impor- 

129.  What  part  has  education  in  the  making  of  a 
salesman?  Is  the  best  salesman  always  the  most  fluent 
talker? 

130.  Why  is  it  necessary  for  the  salesman  to  have 
good  health?  Are  personal  faults  still  excused  by  the 
manager  if  the  salesman  turns  in  a  fair  volume  of  «iles? 

131.  Of  what  importance  is  the  appearance  of  the 
salesman? 

182.  Why  is  honesty  of  especial  importance  in  sell- 
ing? Show  why  the  salesman  is  especially  liable  to 
temptation. 

133.  Should  a  salesman  believe  in  his  work?  Why 
must  the  salesman  be  sincere? 

134.  What  is  fidelity  in  salesmanship? 

135.  What  is  courtesy  in  salesmanship?  Is  it  more 
than  good  manners? 

136.  Why  is  industry  especially  important  in  sales- 
manship?   Has  a  salesman  "working  hours"? 


QUIZ   QUESTIONS 


589 


187.  Show  that  open-mindedness  is  a  valuable  asset 
to  the  salesman. 

188.  Why  must  a  salesman  have  persistence? 

189.  Show  that  tact  is  especially  important.  How 
may  a  salesman  cultivate  tact? 

140.  \  ^y  is  the  salesman  with  initiative  usually  the 
most  efficient? 

141.  What  three  subjects  are  included  in  "knowledge 
of  the  business"?  Explain  their  importance.  Why  is 
it  advisable  for  the  salesman  to  be  in  touch  with  the 
home  office?  Why  is  it  wise  for  him  to  be  familiar  with 
the  methods  and  policies  of  his  house?  Why  should  he 
acquire  knowledge  of  the  competitive  field? 

142.  Explain  why  a  salesman  should  have  confidence 
in  himself,  in  his  house,  in  the  goods  he  sells.  Show 
that  it  is  the  business  of  the  salesman  to  be  creating  con- 
fidence in  the  mind  of  the  customer. 

148.  Of  what  value  is  enthusiasm?  How  may  it  be 
worked  up? 

144.  What  are  the  opportunities  for  success  in  sales- 
manship? 


CHAPTER   XIV 

145.  Explain  why  buying  is  the  universal  business 
activity.    Show  how  it  enters  into  all  lines  of  work. 

146.  What  is  the  modern  tendency  in  respect  to  the 
duties  of  the  buyer?  What  is  the  relation  of  these  du- 
ties to  those  of  other  employes? 

147.  What  are  the  especial  problems  of  the  buyer? 
Why  is  the  small  order  especially  hard  for  the  buyer? 

148.  How  is  the  buyer  often  hampered  in  his  work? 
Discuss  the  requirements  of  economical  buying? 


5U0 


QUIZ   QUESTIONS 


149.  How  may  he  avoid  the  temptation  to  purchase 
^rretTesf    '''''  --derations  Lit  the  si^  TAt 

n.l7'J^l  tye^f  "'^^  '°^  ""^^""  ^"-«*^  *o  ^ 
by'the  hup'*  "*'"*  ™"^*  '^P'^-*-"  »>^  --idered 

lirhis"";^^^^^^^^^^^  ""^"^*^  ^^^^^^  -  *»^^  ^-y-  to 

m.lf ;J'  'P^^"'«*^^«  »»"y'ng  ever  permissible?    How 
must  the  successful  buyer  treat  this? 

IT,'  ^^l  ^""  *^'  ^°"'*  qualifications  of  the  buyer? 
the  ht       .    wl^^T*  ^^  knowledge  of  the  house  by 

^IS   '^''  '''-'  *^"^  --*  '^^  ^--  -  thi^ 
156   What  knowledge  of  manufaeturing  processes 

must  the  buyer  have?    Compare  this  knowIe^^Ttha 

possessed  by  a  salesman.  *^ 

157.  Why  is  it  necessary  for  him  to  be  famOiar  with 

departmental  needs  of  his  house.      Discuss 

the  to.  ^*^^/.^°"j^  ^'  k"°^  the  important  employes  of 
the  house?  Give  four  items  under  the  knowledge  of  the 
house  which  the  buyer  should  know. 

159  Explain  why  it  is  important  for  the  buyer  to 
know  the  market,  the  extent  of  the  demand,  possib  e 
competition  etc.    In  this  respect  why  is  the  p  oblem  of 

than  r;  °;;r.™'*T^^  '^^  *^^  ^-*-y  -«-  simpL 

Can  this  knowledge  be  systematized? 

160  Discuss  the  especially  difficult  problem  of  the 
buyer  for  the  retail  or  wholesale  store. 

161.  What  knowledge  of  values  of  the  goods  to  be 
purchased  should  be  possessed  by  the  buy^?     How 


QUIZ  QUESTIONS 


A91 


may  he  purchase  intelligently?  How  may  he  acquire 
familiarity  with  raw  materials  and  productive  processes? 
How  may  he  know  selling  costs,  possible  profits,  etc.? 

162.  How  may  the  buyer  judge  future  prices? 
Why  must  such  judgment  be  given  with  great  care? 

168.  How  may  the  buyer  acquire  knowledge  of  the 
sources  of  supply?    What  is  included  in  this? 

164.  Why  is  the  location  of  the  houses  from  which  he 
purchases  of  much  importance  to  the  buyer? 

165.  Is  it  necessary  for  the  buyer  to  know  the  ability 
of  the  house  from  which  he  purchases  to  keep  its 
promises? 

166.  Must  he  know  the  financial  responsibility  of  the 
house  with  which  he  deals? 

167.  Show  that  it  is  important  for  the  buyer  to  know 
productive  costs  before  he  agrees  upon  the  price  of  the 
goods  he  purchases.  Under  what  circumstances  may 
he  try  to  "beat  down"  the  price? 

168.  Why  should  the  buyer  know  the  selling  methods 
of  the  house  with  which  he  deals?  Why  do  manufac' 
turers  sometimes  make  the  list  price  higher  than  the  one 
they  would  accept? 

169.  Show  that  the  one  price  idea  is  gaining  among 
buyers  and  manufacturers. 

170.  Why  is  tact  an  essential  quality  of  the  success- 
ful buyer  in  his  relations  with  his  own  house  and  with 
others? 

171.  Why  should  the  buyer  cultivate  friendly  rela- 
tions with  the  salesmen? 

172.  Besides  tact  and  a  knowledge  of  the  business, 
what  qualities  should  the  buyer  possess? 

173.  Discuss  the  importance  of  the  buyer's  position. 
Why  does  the  owner  often  prefer  to  do  the  buying? 


!i 


A»2 


QUIZ   QUESTIONS 


174.  What  two  methods  may  be  adopted  by  factories 
for  their  buying  system?  Explain  the  advantages  and 
disadvantages  of  each. 


CHAPTER  XV 

175.  What  are  two  general  classes  of  buyers?  Why 
is  a  universally  applicable  system  of  buying  not  pos- 
sible? 

176.  State  three  requirements  of  an  adequate  pur- 
chasing system.    What  data  should  be  classified? 

177.  Define  and  explain  the  subject  index.  What  is 
its  purpose? 

178.  What  is  the  firm  index  and  what  should  it  con- 
tain?   What  is  the  meaning  of  "firm"  as  here  used? 

179.  What  records  of  possible  suppliers  should  be 
kept  by  the  buyer?  What  cross  references  should  be 
made  between  the  subject  and  the  firm  indexes?  State 
and  explain  carefully  two  reasons  for  having  the  two 
indexes. 

180.  What  is  the  quotation  file,  and  how  is  it  made 
up?    What  price  data  is  included? 

181.  What  information  contained  in  the  indexes  men- 
tioned is  put  in  the  order  record?  Give  a  typical  order 
record  card.  Of  what  value  are  this  record  and  the 
others  to  the  buyer? 

182.  How  are  orders  placed?  What  data  does  the 
order  blank  contain?  How  many  copies  of  the  order 
are  made  and  to  whom  do  they  go? 

188.  In  what  manner  may  the  buyer  keep  track  of 
orders  placed?  What  is  the  "tickler"  file*  How  may 
the  buyer  know  when  the  supplier's  acknowledgment  is 
received?  How  does  he  know  when  the  goods  are  re- 
ceived? 


QUIZ   QUESTIONS 


mn 


184.  When  partial  deliveries  are  made,  what  system 
may  be  used  to  keep  track  of  the  orders?  What  is  the 
final  result  of  any  system  of  checking  orders? 

185.  What  data  should  the  buyer  enter  upon  the  in- 
voice sent  by  the  consignor?  What  is  then  done  with 
the  invoice?  Explain  in  detail  the  method  of  handling 
the  invoice  after  its  receipt. 

186.  How  may  the  buyer  know  when  purchases  are 
necessary?  What  record  is  kept?  What  data  is  given 
on  this  record? 

187.  May  the  purchasing  system  given  be  modified? 
Discuss. 

188.  May  the  system  given  be  applied  to  a  retail 
store?  If  modifications  are  necessary,  what  should  they 
be?  Explain  why  a  purchasing  system  is  advantageous 
even  to  a  small  retail  store. 

189.  Why  should  the  jobber  introduce  a  good  pur- 
chasing system?  What  records  should  he  keep?  How 
should  his  system  diflPer  from  that  used  in  a  factory? 


PART  11:  CREDIT  AND  THE  CREDIT 

MAN 


CHAPTER  I 

1.  What  is  the  basis  of  aU  business  relations? 

2.  In  what  respect  does  the  law  of  contract  support 
confidence?  Why  is  credit  sometimes  defined  as  a 
"right  of  action"? 

8.  What  relation  does  the  medium  of  exchange  bear 
to  credit?    Why  is  money  a  sign  of  economic  progress? 
4.   tVhat  is  meant  by  "credit  economy"? 

C— m— 88  "^ 


594 


QUIZ    QUESTIONS 


"money    economy'*    differ    from 


5.  Wherein    does 
"credit  economy"? 

6.  What  is  the  relation  of  bank  credit  to  general 
mercantile  credit?  In  what  respect  is  the  relation 
that  the  cash  reserves  of  the  banks  hold  to  their  out- 
standing credits,  a  guide  to  the  commercial  credit  opera- 
tions? 

7.  What  relation  does  credit  bear  to  panics?  In 
what  respect  is  a  rigid  credit  giving  standard  helpful? 

8.  What  is  meant  by  the  term  "credit  of  limited  ac- 
ceptability"? What  is  meant  by  the  term  "credit  of 
unlimited  acceptability"?  Differentiate  between  the 
former  and  the  latter.  Why  is  there  a  tendency  for 
the  demand  of  money  to  decrease  when  the  use  of  credit 
is  increasing? 

9.  What  compels,  nowadays,  the  business  man  to  turn 
over  his  capital  oftener?  ^Tierein  do  long-time  credits 
differ  from  short-time  credits? 

10.  Define  "investment  credit,"  "banking  credit"  and 
"commercial  credit."  What  are  the  advantages  of 
credit  in  the  various  branches  of  economic  activity  of 
production,  exchange,  distribution  and  consumption? 


CHAPTER  II 

11.  What  relation  does  'credit  economy"  bear  to 
money? 

12.  In  order  of  origin,  which  credit  holds  first  place? 
What  caused  banking  and  commercial  credits  to  develop 
rapidly? 

18.  Can  a  personal  credit  system  be  as  well  organized 
as  a  banking  credit  system?   Why? 


QUIZ   QUESTIONS 


595 


14.  What  are  the  reasons  that  cause  some  lenders  to 
neglect  making  proper  inquiries  about  borrowers? 
What  part  does  the  "business  sense"  play  in  such  cases? 
What  advantage  does  a  merchant  gain  by  a  study  of 
credit?  Describe  the  "Indianapolis  Plan."  Name  the 
three  fundamental  ideas  that  underlie  the  working  of 
this  system. 

15.  What  are  the  effects  of  the  extension  of  personal 
credit?    How  does  it  affect  prices? 

16.  In  what  way  does  a  "too  ready  credit"  affect  the 
consumer?  Why  is  it  asserted  that  the  curtailing  of 
credit  among  working  classes  would  tend  to  raise  them 
morally  and  economically  in  the  scale  pf  social  better- 
ment? 

17.  What  connection  is  there  between  extravagance 
and  credit?  Explain  the  following  statement:  "The 
merchant  should  be  more  interested  in  the  surplus  which 
the  customer  can  devote  to  the  purchase  of  goods,  than 
to  the  size  of  the  bills  for  the  rent  of  house  and  automo- 
biles." 

18.  Why  is  the  credit  system  complementary  to  the 
commercial  sys^^em? 

19.  What  were  the  factors  that  caused  changes  in 
the  credit  system?  What  effect  has  long-time  credit 
on  prices? 

20.  What  is  meant  by  the  term  "dating"?  Why  is  it 
regarded  by  some  as  detrimental  to  a  sound  credit  sys- 
tem? ^ 

21.  Differentiate  between  the  terms  "dating"  and 
"book  account."  What  caused  the  rise  of  commission 
houses  dealing  in  book  accounts? 

22.  In  what  ways  are  book  accounts  usually  assigned? 
Which  is  the  most  preferable  method  from  the  borrow- 
er's point  of  view?  ^ 


596 


QUIZ   QUESTIONS 


CHAPTER   III 

23.  Differentiate  between  "consumptive"  and  "in- 
vestment" credit.    Define  "long-time  investments." 

24.  Mention  a  few  of  the  elements  of  safety  in  capital 
credits. 

25.  What  are  the  principal  forms  of  capital  credit? 
What  is  the  relative  percentage  of  investments  in  "in- 
dustrials" as  compared  with  investments  in  "railroads"? 

26.  What  are  the  principal  sources  of  capital  funds? 

27.  What  relation  does  banking  credit  bear  to  com- 
mercial credit  ? 

28.  What  are  the  limitations  of  bank  credit? 

29.  Is  the  field  of  credit  operations  open  to  a  bank 
dependent  upon  the  degree  of  convertibility  among 
credit  instruments? 

30.  Define  the  term  "business  paper."  What  is 
meant  by  a  "single-name"  paper?  What  by  a  "double- 
name"  paper?    Define  accommodation  paper. 


CHAPTER   IV 

81.  What  elements  must  be  emphasized  regarding  the 
nature  of  credit?  What  are  consequently,  the  functions 
of  a  credit  department?  Can  a  general  hard  rule  be 
laid  down  as  to  information  that  would  fit  all  lines  of 
business?  What,  in  the  last  analysis,  are  the  main  fac- 
tors forming  the  basis  of  credit? 

82.  Name  the  two  most  important  considerations  in 
connection  with  an  estimate  of  a  wholesaler's  credit. 
Wliat  is  the  practice  of  the  Chicago  wholesale  house 
with  respect  to  its  customers?    What  other  factor,  be- 


QUIZ   QUESTIONS 


597 


sides  the  business  getting  quality  of  a  consumer,  is  to 
be  taken  into  consideration? 

88.  Why  is  the  manufacturer  in  a  more  favorable 
position  in  choosing  his  customers,  than  the  wholesaler? 
How  is  the  manufacturer  handicapped  in  his  direct 
trade  with  the  consumer? 

84.  Upon  what  consideration  does  the  retailer  base 
his  opinion  of  the  trustworthiness  of  a  customer?  Is 
there  any  compensation  for  his  uncertainty? 

85,  What  are  the  provisions  of  the  installment  plan? 


CHAPTER  V 

86.  State  the  three  es&2ntials  of  business  credit;  which 
is  the  most  important  one? 

87.  State  the  two  methods  of  investigation  open  to 
the  credit  man;  describe  the  direct  way  of  getting  in- 
formation. What  is  the  advantage  of  a  statement  pre- 
sented by  the  applicant? 

88.  What  are  the  factors  making  the  average  busi- 
ness look  upon  a  financial  statement  with  distrust? 
Where  is  the  method  most  usual  ?  State  briefly  the  dif- 
ference between  Form  I  and  Form  II.  State  briefly 
what  facts  the  creditor  js  interested  in  when  requiring 
the  prospective  customer  to  fill  out  the  Property  State- 
ment Blanks,  and  point  out  the  differences  between 
them.  What  principle  should  be  applied  by  the  credit 
man  to  the  various  assets  appearing  on  a  statement? 

89.  Illustrate  the  analysis  of  a  statement  by  a  com- 
parison of  the  items  with  the  general  business  situation. 
Taking  up  rent,  should  we  compare  it  with  profits,  gen- 
eral expenses  or  capital?    Why? 

40.  Who  takes  usually  the  place  of  the  credit  man 


598 


QUIZ    QUESTIONS 


in  out-of-town  investigations?  Describe  the  methods 
of  inquiry  by  a  reporter.  Under  what  conditions  is  a 
traveling  representative  employed?  What  is  the  ad- 
vantage of  using  this  expensive  method? 

41.  Why  is  it  not  a  sound  policy  to  combine  the  two 
offices  of  salesman  and  credit  man  in  one  person? 
What  information  may  be  easily  supplied  by  the  sales- 
man? By  whom  is  that  infonnation  obtained  in  case  of 
concerns  selling  through  branch  houses? 

42.  Describe  the  commercial  agency  method  of  get- 
ting information.  What  are  the  two  other  informants 
at  the  disposal  of  wholesale  houses? 

43.  What  is  the  history  and  present  standing  of  the 
two  largest  commercial  agencies? 

44.  Describe  a  system  of  collecting  information  by  a 
standard  commercial  agency.  How  are  reports  on 
unexpected  changes  procured? 

45.  What  are  the  contents  of  an  agency's  report? 
How  is  a  special  report  obtained  and  transmitted? 

46.  How  is  general  information  about  merchants  and 
ratings  distributed?  What  does  a  special  report  con- 
tain? Of  what  use  to  the  merchant  are  the  weekly  re- 
views?   What  do  they  contain? 

47.  What  privileges  are  extended  to  agency  mem- 
bers?  At  what  cost? 

48.  What  are  the  agency's  sources  of  information? 
Why  is  it  essential  that  the  statements  obtained  from 
firms  be  signed  by  some  member  that  is  legally  responsi- 
ble for  the  firm  ? 

49.  Into  how  many  kinds  are  the  reports  divided? 
Upon  what  elements  are  these  divisions  based?  How 
does  capital  rating  affect  credit  rating? 

50.  Explain  the  following:  "All  risk  is  a  result  of 
lack  of  knowledge."    What  is  the  purpose  of  agency 


QUIZ   QUESTIONS 


599 


• 

reports?    What  are  the  usual  complaints  made  against 
mercantile  agencies? 

51.  What  are  the  causes  that  brought  forth  co- 
operative credit  methods?  Describe  the  contents  of  the 
form  referred  to  in  this  section.  What  were  the  rules 
proposed  at  the  1911  Convention  of  Credit  Men?  De- 
scribe briefly  the  plan  of  operation  used  by  the  Colum- 
bus association  of  credit  men. 

52.  What  are  the  advantages  of  the  interchange  sys- 
tem? 

58.  To  what  extent  does  a  local  bank  or  a  local  attor- 
ney serve  indirectly  as  a  medium  of  getting  credit  in- 
formation? 

54,  To  what  extent  do  results  of  litigations  tend  to 
gauge  the  credit  standing  of  a  merchanti 


CHAPTER  VI 

55.  What  serves  to  support  the  structure  of  the 
credit  system  from  the  outside  and  in  what  respects? 
What  is  the  general  principle  underlying  every  form  of 
insurance? 

56.  How  does  the  general  principle  appty  to  credit 
insurance?  How  does  the  insurance  company  deter- 
mine its  risk  in  this  case?    Illustrate  by  example. 

57.  How  does  a  credit  underwriting  company  classify 
its  applicants? 

58.  State  the  arguments  in  favor  of  credit  insurance. 

59.  State  the  weak  points  in  credit  insurance. 

60.  Upon  what  fundamental  principle  are  the  laws 
of  bankruptcy  based?  Upon  what  presumption  are  the 
bankruptcy  laws  of  the  present  day  formed  as  con- 
trasted with  early  insolvency  laws?    What  were  the 


600 


QUIZ    QUESTIONS 


disadvantages  of  the  creditor  in  absence  of  a  national 
bankruptcy  act? 

61.  State  the  advantages  of  the  present  bankruptcy 
law. 

62.  State  the  amendments  to  the  bankruptcy  law 
passed  in  1910,  their  meaning  and  importance  to  the 
business  world. 

63.  What  steps  have  been  taken  by  various  business 
associations  to  aid  the  effective  administration  of  the 
present  national  bankruptcy  law?  Why  is  the  latter 
satisfactory  to  the  business  conmiunity? 

64.  Why  was  co-operation  originally  opposed  by 
credit  men?    State  the  arguments  for  conmion  action. 

65.  Which  was  the  first  national  credit  organiza- 
tion? State  the  objects  of  that  association.  By  what 
means  does  it  further  its  ends? 

66.  By  what  reasons  do  the  credit  departments  of 
every  line  of  business  act  as  the  points  of  nearest  ap- 
proach between  the  various  business  units? 

67.  State  the  relation  of  the  sales  department  to  the 
outsider;  in  what  relation  does  the  collection  depart- 
ment stand  to  the  public?  In  what  relation  does  the 
credit  department  stand  to  the  other  departments  of  a 
concern?  What  data  does  a  well  organized  credit  sys- 
tem take  care  of? 

68.  Describe  a  suitable  method  of  handling  the  in- 
coming mail  in  a  wholesale  concern.  Why  is  a  card 
system  most  convenient  for  the  credit  department? 
What  is  the  object  of  having  differently  colored  cards? 
How  is  delay  avoided  in  filling  orders  of  new  custo- 
mers? Describe  a  system  showing  the  close  connection 
between  the  credit  department  and  the  other  depart- 
ments.   What  is  a  "tickler"? 

69.  What  is  the  universal  policy  every  collection  de- 


QUIZ   QUESTIONS 


601 


partment  should  adhere  to?    State  the  successive  steps 
ill  the  collection  of  an  account. 

70.  How  should  a  delinquent  account  be  treated? 
Why  is  it  of  importance  that  the  credit  man  should  pay 
close  attention  to  debtors  who  failed  to  meet  their  obli- 
gations? 

71.  What  helps  the  credit  man  in  analjrzing  the  finan- 
cial statement  of  a  prospective  customer?  What  ques- 
tions should,  according  to  Prof.  Bollse,  the  man  unfa- 
miliar with  accounting  ask  when  analyzing  a  statement? 
What  additional  questions  would  Mr.  Thome  ask? 
Is  the  amount  of  capital  the  only  criterion  by  which  to 
determine  the  basis  of  credit?  Show  by  example  how 
the  kind  of  assets,  i.  e.,  the  nature  of  capital,  and  the 
proportion  of  assets  to  liabilities,  should  affect  the 
amount  of  credit  to  be  extended  to  a  customer. 

72.  Explain  the  nature  of  the  advantage  arising  from 
membership  in  a  Canadian  credit  association.  In  what 
way  do  these  credit  associations  protect  an  honest  debtor 
who  has  gotten  into  temporary  financial  difiiculties? 
What  reasons  can  you  suggest  for  the  ease  with  which 
long  credits  have  hitherto  been  granted  in  Canada? 

73.  What  are  the  defects  of  the  general  bankruptcy 
procedure  in  Canada?  Why  do  business  men  so  easily 
abandon  bad  debts?  What  definite  plan  would  you  sug- 
gest for  protecting  creditors  against  dishonest  debtors 
in  Canada?  What  are  the  particular  difficulties  in  the 
credit  situation  in  the  prairie  provinces? 

74.  Why  is  only  a  small  part  of  the  debt  of  an  in- 
solvent estate  secured  by  the  creditor?  What  objec- 
tions can  be  made  to  the  work  of  liquidators  in  the  Prov- 
ince of  Quebec?  Why  does  not  the  average  small  cred- 
itor interest  himself  in  creditors'  meetings?  Draw  up  a 
statement  of  failures  in  Canada  within  the  last  six 


60S 


QUIZ   QUESTIONS 


months,  and  comment  on  the  causes  for  the  same.  What 
part  do  credit  associations  play  in  protecting  creditors? 
75.  Explain  in  detail  the  good  features  of  the  English 
bankruptcy  laws.  To  what  extent  should  those  princi- 
ples be  adopted  in  Canada?  Explain  the  necessity  of  a 
uniform  bankruptcy  law  for  the  whole  of  Canada. 
What  is  the  relation  between  credit  institutions  in  Can- 
ada and  the  country's  general  progress?  Show  the  im- 
portance of  confidence  as  an  element  in  credit,  and  the 
bearing  of  that  feature  upon  the  problems  that  arise  in 
bankruptcy. 


PART  III:     TRAFFIC 


CHAPTER   I 


1.  What  was  the  influence  of  its  waterways  on  the 
early  development  of  Canada? 

2.  What  was  the  next  development  in  the  transporta- 
tion routes  of  Canada?  Where  were  the  first  "grand 
trunk  roads"  built? 

3.  What  was  the  first  Canadian  railroad?  What  im- 
portant roads  were  built  before  Confederation? 

4.  What  was  the  prime  reason  for  the  building  of 
the  Canadian  Pacific? 

5.  Compare  the  recent  expansion  of  Canadian  rail- 
roads with  the  growth  of  American  railways.  What 
has  been  the  tendency  in  Canadian  railroading  lately? 

6.  How  has  the  building  of  the  trunk  lines  influenced 
railway  development  in  Canada? 

7.  Locate  some  of  the  Canadian  railroads. 

8.  What  are  the  freight  resources  of  this  territory? 


QUIZ    QUESTIONS 


60S 


9.  Compare  the  distribution  of  the  population  in  the 
provinces  with  the  distribution  of  the  railway  mileage. 

10.  What  may  serve  as  an  index  of  the  potential  rail- 
way traffic  ?  Whai  percentage  of  this  traffic  is  furnished 
by  each  province? 

11.  How  does  the  actual  traffic  compare  with  the 
potential  traffic? 

12.  Describe  the  traffic  interrelations  of  Canada  and 
the  United  States, 

18.  What  is  the  volume  of  this  traffic?  What  is  its 
effect? 


CHAPTER  II 


14.  Why  is  classification  necessary?  Give  examples 
of  some  of  the  early  classifications. 

15.  How  does  it  happen  that  different  classifications 
may  be  in  effect  on  different  parts  of  the  same  road? 

16.  Discuss  classifications  in  the  United  States. 

17.  Discuss  the  Canadian  classifications. 

18.  What  classifications  apply  in  traffic  between  Can- 
ada and  the  United  States? 

19:  Why  has  the  Canadian  classification  been  ex- 
panded? 

20.  Why  is  the  carload  used  as  the  unit  in  determining 
carload  differences?  W^hat  are  the  regulations  regard- 
ing carload  ratings? 

21.  What  are  the  measurements  of  the  standard  box 
car?    On  what  basis  is  the  minimum  carload  increased? 

22.  What  are  the  arguments  for  and  against  higher 
rates  on  L.  C.  L.  than  on  C.  L.  shipments? 

23.  How  have  the  Canadian  Freight  classifications 
been  built  up? 


604 


QUIZ   QUESTIONS 


24.  What  is  the  mixing  privilege?  What  are  the  reg- 
ulations governing  mixing  ? 

25  How  have  the  regulations  governing  the  "mixing 
prmlege  affeeted  western  Canada  as  eompared  wTth 
the  effect  m  eastern  Canada? 

26.  What  factors  influence  classifications? 

27.  How  does  value  influence  classification? 

tion     '"''     ^""^  "^"'^^^  ^'  ^^'y  *^^^  *^»«««fi<^a- 

tion!?  "°''  '*°^'  *^'  "'''  °^  '"'''^«'  ^^^  <^l*««fica- 

80    Of  what  importance  are  facilit-s  and  equinment 
required  in  making  classifications.  ^q^'P^ent 

*hf  r  ^Y  "/  ^^^  regulations  governing  charges  in 
the  Canadian  freight  classification?  ^ 

82.  How  is  false  classification  punished? 


CHAPTER   III 

than  fh^'  *^'  ^""'^^^  *''^'  °"  *^'*"*^«"  ^^a^-o^ds  greater 
than  the  passenger  traffic?  How  has  this  influenced  the 
growth  of  the  Canadian  railroads? 

ada  ? '  ^^^  "'  "^^""^^  '^*''  °^  "'P^'«*  ^*"*^'e«*  in  Can- 

J  fuT^^lt  ^.'^^^^P'^^i^n^  «f  Leland  Stanford  and 
36  ™!  "".^'^^"^"r'  °'  competition  upon  rates. 
36.  Wherein  does  the  business  of  the  railroad  differ 

from  the  manufacturing  or  mercantile  business? 
al  Zt,  ^^•^""t;^"^  ^'^  th^'-^  to  paralleling  of  lines? 

89  Twhir  ^r  "'^*""^  ^"  *^^  ^^-*  Shore  case? 
40  WhZ  r  *^^^^•^""^^"t«  for  flat  rates  based? 
40.  What  IS  the  equal  mileage  theory?    Discuss  it. 


gUIZ    QUESTIONS 


605 


41.  Can  rates  be  based  on  capitalization?    Why? 

42.  Discuss  physical  valuation  as  a  rate  basis.    How 
do  you  think  it  would  affect  rates? 

48.  Why  is  the  cost  of  service  difficult  to  use  as  a 
basis  in  tate-making? 

44.  What  is  cost  of  service? 

45.  Discuss  the  "What  the  traffic  will  bear"  policy  of 
rate-making. 

46.  Can  this  policy  be  applied  profitably  in  other  lines 
of  business? 

47.  Use  a  newspaper  as  an  illustration  of  this  policy. 

48.  Do  you  agree  that  "rates  are  based  on  competi- 
tion, comparison,  and  compromise"?    Why? 

49.  What  is  the  test  of  the  reasonableness  of  a  rate? 


CHAPTER   IV 

50.  What  is  a  commodity  rate?  Under  what  condi- 
tions is  it  granted  ?  What  is  the  German  practice  in  this 
connection?    What  are  class  rates? 

51.  Compare  the  average  carload  in  the  United  States 
and  Canada  with  the  average  carload  in  Germany  and 
England. 

52.  What  two  component  factors  enter  into  the  rate? 
Itemize  the  headings  under  each  factor. 

58.  What  is  "grouping"?  How  does  it  affect  rates? 
Give  examples  of  "grouping."  What  are  percentage 
groups?     Illustrate. 

54.  What  road  sets  the  rate  among  competing  lines? 
Under  what  circumstances  does  the  longest  route  set  the 
rate? 

55.  What  is  a  differential  rate?  Illustrate  by  the 
Canadian  Pacific  differential  rate. 


006 


QUIZ   QUESTIONS 


36.  How  does  water  competition  influence  rates  if  II- 
lust'-ate. 

37.  Why  does  changing  the  center  of  population  or 
industry  affect  rates? 

38.  How  do  the  ports  affect  rates? 

59.  Should  the  rate  regulative  tribunal  change  rates  so 
that  all  industries  may  compete  on  an  even  keel? 

60.  Does  net  profit  of  operation  influence  improve- 
ments in  roadbed  and  rolling  stock?  Name  some  of 
the  improvements  made. 


CHAPTER   V 

61.  How  are  freight  tariffs  classed  under  the  Railway 
Act?  ' 

62.  What  regulations  govern  the  standard  tariff? 
Give  examples  of  the  standard  freight  tariffs  on  the  Ca- 
nadian Pacific. 

68.  What  regulations  govern  special  and  competitive 
rates? 

64.  How  are  the  transcontinental  rates  fixed? 

65.  What  are  distributive  rates?  Why  are  they 
made? 

66.  Discuss  the  International  Rate  case.  What  were 
the  results  of  the  decision  in  that  case? 

67.  How  are  rates  fixed  in  eastern  Canada?  What 
are  "town  tariffs"? 

68.  What  is  the  "traders"  tariff  arrangement?  Ex- 
plain its  effects. 

69.  What  principle  applies  in  making  export  rates? 

70.  Why  is  a  low  import  rate  justified? 

71.  What  factors  influence  the  rate  problem  in  Can- 
ada? 


QUIZ   QUESTIONS 


607 


72.  How  do  import  rate  anomalies  arise? 
78.  Explain  the  attitude  of  the  railways. 

74.  Discuss  the  manufacturing  in  transit  arrange- 
ments and  tlieir  eflFect  on  industry. 

75.  What  is  the  practical  result  of  being  able  to 
change  the  dest*  ation  of  a  shipment  while  it  is  in 
transit? 

76.  What  are  concentration  rates?  What  is  the  ad- 
vantage of  concentration  rates? 

77.  What  special  rate  reductions  are  sometimes 
made? 

78.  Trace  the  history  of  cartage  service  by  the  Ca- 
nadian railroads  down  to  the  present  time. 


CHAPTER   VI 


79.  Why  are  some  of  the  factors  which  influence 
freight  rates  negligible  in  affecting  passenger  rates? 

80.  How  does  distance  affect  the  passage  rate? 

81.  Why  are  excess  fares  necessary  if  the  railway  is 
to  operate  the  high  speed  trains  profitably? 

82.  Is  the  terminal  charge  per  unit  less  in  the 
case  of  passenger  traffic  than  in  the  case  of  freight 
traffic? 

88.  Why  is  it  simpler  to  apply  the  equal  mileage  the- 
ory to  passenger  rates  than  to  freight  rates?  To  what 
extent  is  the  tapering  rate  theory  applied  to  passenger 
rates?  Is  the  empty  car  movement  important  in  pas- 
senger traffic? 

84.  To  what  extent  would  you  regard  the  passenger 
department  as  essential  in  gaining  business  for  the 
freight  department? 


608 


QUIZ    QUESTIONS 


3  t 


85.  What  is  the  proportion  of  passenger  r^. 
freight  receipts? 

86.  What  is  an  index  of  increasing  business? 

87.  What  is  the  effect  of  economic  depression  on  pas 
senger  business  ?    On  freight  business  ? 

88.  Is  maximum  loading  possible  in  passenger  busi 
ness? 

89.  Why  is  "dead  weight"  greater  in  passenger  busi 
ness  than  in  freight  business?  What  effect  has  this  oi 
the  cost  of  passenger  business? 

90.  How  are  passenger  rates  classified  in  Canada 
What  can  the  railroad  do  in  the  way  of  making  specia 
rates? 

91.  What  are  the  standard  rates'now  in  effect  in  Can 
ada? 

92.  Describe  the  ticket  regulations  of  the  Canadiai 
Pacific. 

93.  Under  what  conditions  is  sleeping  car  service  fur 
nished? 

94.  Why  has  classification  in  passenger  rates  not  pro 
ceeded  on  the  Canadian  railroads  as  it  has  on  the  Euro 
pean  roads?    Name  some  of  the  rates  in  effect. 

95.  Describe  passenger  classifications  in  Europe 
What  is  the  zone  system  of  fixing  rates? 

96.  Compare  railway  trafiSc  here  with  that  of  Eu 
rope. 


CHAPTER  VII 


97.  What  are  the  conunon  law  obligations  of  the  rail 
ways? 

98.  Describe  the  bill  of  lading  and  its  conditions. 

99.  What  are  the  limitations  of  the  railroad's  liabil 
ity? 


QUIZ    QUESTIONS 


600 


100.  Is  insurance  recoverable  by  the  railroad  if  it 
pays  for  the  damage  done? 

101.  What  is  the  extent  of  the  railroad's  liability  as 
a  warehouseman? 

102.  How  is  the  loss  or  damage  computed?  How  and 
when  should  the  claim  be  made. 

103.  If  the  freight  charges  are  not  paid  how  does 
the  railroad  get  its  money? 

104.  What  are  the  forms  of  the  bill  of  lading? 

105.  What  does  "due  diligence"  mean? 

106.  What  is  the  actual  car  movement  ?  Do  you  think 
there  is  room  for  improvement  in  this  respect? 

107.  What  is  demurrage?  What  are  demurrage 
charges? 

108.  What  are  the  causes  of  demurrage? 

109.  What  is  the  relation  between  demurrage  and  car 
shortage? 

110.  Who  is  to  blame  for  the  car  shortage? 

111.  Would  higher  demurrage  charges  remedy  the 
situation? 

112.  What  is  the  "average  demurrage"  plan?  What 
are  its  advantages? 

118.  Discuss  reciprocal  demurrage?  What  are  the 
arguments  for  and  against  it? 

114.  What  are  the  advantages  of  a  car  pool?  What 
is  the  per  diem  charge? 

115.  What  are  the  provisions  of  the  order  relating 
to  inter-switching? 

116.  Discuss  the  work  of  the  claims  department. 
How  can  the  claims  department  help  the  road's  busi- 
ness? 


c— iii-ai 


GIO 


QUIZ    QUESTIONS 


CHAPTER   VIII 


117.  What  is  express  service?    Discuss  its  scope. 

118.  Who  was  William  Herndon?  What  was  his  con- 
nection with  express  service?  Describe  the  early  his- 
tory of  the  modem  express  companies  in  the  United 
States. 

119.  How  did  the  express  companies  develop  in  Can- 
ada? What  is  the  difference  between  the  Canadian  and 
American  companies? 

120.  What  is  the  arrangement  between  the  express 
companies  and  the  railroads? 

121.  Are  there  express  classifications  similar  to  the 
freight  classifications?     Discuss  them. 

122.  What  factors  are  considered  in  making  freight 
classifications? 

123.  What  are  the  express  company's  limitations  as 
to  liability? 

124.  What  are  the  standard  mileage  tariffs? 

125.  Are  differences  in  traffic  conditions  allowed  to 
influence  rates?    Why? 

126.  How  many  standard  tariffs  are  there?  How 
are  they  built  up? 

127.  What  are  local  and  transfer  tariffs?  How  are 
the  local  tariffs  quoted?  How  are  the  transfer  tariffs 
made? 

128.  Are  the  factors  affecting  express  rates  analogous 
to  those  influencing  passenger  rates  or  freight  rates? 
Discuss  them. 

129.  May  the  express  rate  be  expressed  as  a  multiple 
of  the  first  class  freight  rate? 

180.  How  are  commodity  rates  put  in  force?  What 
influence  have  the  commodity  rates  on  the  rates  to  in- 
termediate points? 


QUIZ   QUESTIONS 


611 


181.  What  is  the  graduate  table?    How  is  the  rate 
for  any  given  weight  found  in  the  graduate  table? 

182.  Are  the  graduate  table  rates  built  up  on  a  sci- 
entific basis?    Why? 

188.  What  is  the  "single"  graduate?    What  is  its  ef- 
fect? 


CHAPTER  IX 


184.  To  what  extent  does  water  transportation  reg- 
ulate freight  rates?  What  affects  the  efficiency  of  in- 
land water  transportation? 

185.  How  do  shallow  rivers  affect  the  efficiency  of 
waterways? 

186.  Why  may  the  location  of  a  canal  terminal  make 
it  unprofitable  to  use  the  canal? 

187.  What  is  the  relation  of  highway  costs  to  other 
costs  of  transportation? 

188.  Describe  the  Canadian  lock  and  canal  route. 

189.  Describe  the  Georgian  Bay  Canal  route.  Com- 
pare it  to  other  routes.    WTiat  are  its  possibilities? 

140.  What  is  the  importance  of  the  Ottawa  Canal 
system? 

141.  How  are  the  canal  charges  paid? 

142.  Compare  the  traffic  passing  through  the  Sault 
Ste.  Marie  Canals  with  that  handled  by  the  Suez  Canal. 

148.  What'percentage  of  the  total  Upper  Lakes  traf- 
fic is  handled  through  the  "Soo"  Canal? 

144.  What  is  the  character  of  the  freight  carried  on 
the  Lakes? 

145.  What  percentage  of  Canadian  wheat  is  carried 
on  the  Lakes? 

146.  How  has  the  specialized  character  of  the  traffic 


612 


QUIZ   QUESTIONS 


Muenced  the  type  of  boat,  which  ply  »  the  Gre.t 
pom«o^ir«'  *'  '°™'«""  of  the  <W.  Tr™. 

ican  lake  ton  mUe  rate  '"''*™  "°^  ^^°»'- 


CHAPTER  X 

158.  With  what  countries  does  r'or.-j    j 
her  fon^ign  business,    ^tS^cSrof'tJ^^rf  °' 
porta  ar.  manufactured  produS^-  *°'^  "" 

154.  What  articles  form  the  hnlt  «*  .t    • 

sports  between  G.at  ^H^ '.:fd' ^^ ^^  ""^ 

155.  Canada  and  the  United  States? 
l«8.  Canada  and  Fnuice? 

Ill'  ^^  "^  "■*  ^™'^  American  countries* 

merof'tiL^^,r^  '°f  tte  differ.*  in  move- 

porte  and  the  pc^tT^^^  ^^'STS'r^ 
161.  Sununanze  the  rituation  at  Montreal        ^^ 

f 


QUIZ   QUESTIONS 


613 


162.  Why  is  so  large  a  part  of  Canadian  grain  moved 
by  American  channels  to  American  ports? 

168.  How  does  insurance  affect  the  St.  Lawrence 
route?    Why? 

164.  What  steamship  lines  are  most  heavily  subsi- 
dized?   How  are  the  subsidy  contracts  administered? 

165.  What  are  the  two  main  classes  of  ocean  vessels? 
What  is  a  "*  amp"  steamer?  Describe  a  possible  voy- 
age for  a  ti  .np  sailing  from  Montreal. 

166.  What  is  a  charter  party?  What  are  the  terms 
of  the  Anglo-American  Cotton  charter  party? 

167.  How  are  ocean  freight  rates  fixed?  How  may 
the  vessel  be  measured? 

168.  Distinguish  ocean  traffic  from  railway  traffic. 

169.  What  is  the  effect  of  harvests  on  ocean  rates? 

170.  Name  the  conditions  of  water  carriage.  How 
do  they  differ  from  the  conditions  of  railway  carriage? 

171.  How  do  the  ocean  rates  affect  Canada?  What 
is  meant  by  "spread"? 

172.  Have  lumber  rates  increased  recently? 

178.  What  is  the  attitude  of  the  carriers  towards  the 
rates  on  wheat  and  flour? 

174.  Sum  up  the  ocean  rate  situation  in  Canada, 
bearing  in  mind  the  rate  "conference." 

175.  What  is  the  weak  link  in  Canada's  transporta- 
tion system? 

176.  What  are  the  prospects  of  the  Hudson  Bay 
Railway? 

177.  Discuss  the  possibilities  of  the  Pacific  route. 

178.  Summarize  the  changes  in  trade  routes  affected 
by  the  opening  of  the  Panama  Canal.  What  are  the 
possibilities  of  the  Tehuantepec  route?  Compare  it 
with  the  Panama  route. 


INDEX 


AbUity, 
Mental,  150. 

Uf  salesman's  house  to  keep  his 
promises,  183. 
Accounts, 
Suspended,  318-319. 
Two  methods   of  assigning,  341- 
949. 
Acquaintance   with   important  em- 
ploy^ 176. 
Act, 
Canada  grain,  486. 
Harter,  569-563. 
Railway.     (See  RaUway  Act.) 
Adaptation     of     standard     selling 

talks.  111. 
Advantage  in  purchasing  power,  16. 
Advantage    to   employer   of    sales- 
men's information,  98. 
Advantages  of  direct  sales  only  to 

consumer,  38. 
Advantages  of  direct  sales  only  to 

retailers,  37. 
Advantages  of  interchange  system, 

291. 
Advantages  of  making  direct  sales 

only  to  jobbers,  35. 
Advantages  of  present  law,  303. 
Advantages  of  selling  through  re- 
tail stores,  14. 
Advertiser,  the,  a  salesman,  137. 
Advertising, 
And  publicity  campaigns,  40. 
And   sales   departments,  relation 

of,  73-74. 
Committee,  80. 
Department,  57. 
RaUway,  456,  458. 


Agents, 
Definition  of,  79. 
Use  of,  43. 
Criticism  of,  981-984. 
Agency  method,  973-974. 
Agency  reports,  content  of,  977. 
Agency  service,  cost  of,  979. 
Agency,  the  commercial,  975. 
Agriculture,    influenced    by    roads, 

337. 
Alabama  Midland  case,  443. 
Amendments,    meaning    of    recent, 

304-305. 
Analysis  of  credit  information,  319- 

394. 
Appearance  of  salesmen,  99. 

Importance  of,  153. 
Application    of    committee    system 

to  manufacturers'  organisation, 

diagram  of,  85. 
Argiunents  in  favor  of  credit  insure 

ance,  999-300. 
Arousing  interest,  141-149., 
Assignment  of  sales  territory,  194. 
Associations  of  credit  men,  307. 
Attomeys-at-Iaw,  servkxs  of,  993. 
AUracting  attention,  13S-14a 

B 

Ballast,  548-549. 

Banks  and  mercantile  houses,  credit 

latitude  of,  948. 
Banking  and  credit,  917. 
Banks  as   sources    of  information, 

999. 
Bank  credit. 
Limitation  of,  947. 
Its  relation  to  commercial  credit^ 

S46. 


615 


616 


INDEX 


Bankruptcy  lawt^ 

Evils  of  Canadian,  3S9-333. 

Future  of,  306-307. 

National,  301-303. 

Procedure  in  Canada,  336-399. 
Bargains  which  involve   future  de- 
livery, 215. 
Bessemer  Steamship  Company,  537. 
Bill  of  Lading, 

Conditions  of,  477-478. 

Export,  560-563. 

Forms  of,  483-483. 
Blanketing,    388,    458,    571. 
Blue   Funnel   Line,   418. 
Book  acount,  338-340. 
Bradstreet's  Agency,  975. 
Branch-houses,  organization  of,  73. 
Brokers,  43. 
"Bunching    rule,"    and    demurrage, 

487. 
Business, 

Houses  classified  by  credit  under- 
writers, 298. 

Knowledge  of,  161-164. 

Large  scale  of,   41. 

Meeting  of  problems  peculiar  to, 
111-113. 

Paper,  349-351. 

Policy  or  expediency,  3S-35. 
Buyer,  The, 

And  his  work,  168-191. 

Duties  of,  169. 

Knowledge  of  his  house,  174. 

Problems  of,   170. 

Qualifications  of,  174. 

Qualities    important    to    possess, 
188. 

Task  of,  173. 

Wholesale  or  retail,   178. 
Buyers,  work  of,  53. 
Buying, 

And   selling,    1-211. 

By  whom  done,  188. 

Data,  necessity  of  cross-referenct^' 
for,  195. 

Speculation,  174. 

System  in,  191-311. 


The    unirersol    business    ■etlTity, 
16& 


Call  loans,  34& 

Canada  Grain  Act  and  demurrage 

charges,  486. 
Canada  Transjiortation  Lines,  Ltd., 

formation  of,  537. 
Canadian  Credit  Men's  Association, 

334,  325,  336. 
Canadian  Freight  Association, 
On  demurrage,  489. 
On  minimum  weights,  36S-.164. 
Rearranging    rating   on    tobacco, 

376-377. 
Requirements    of,    when    making 
rate  changes,  379. 
Canadian    Manufacturers'    Associa- 
tion, 325,  401-403. 
Canadian      Passtnger     Association, 

499. 
Canals,  527-539. 
Canvasser,  The,  19. 
Capital  or  investment  credit,  943. 
Elements  ot  safety  in,  944. 
Principal  forms  of,  945. 
Cars, 

Freight,  364-365,  435. 
"Legal  tender,"  498-409. 
Passenger,   463-466. 
Cartage  service,  451-453. 
Catalogue  file,  196. 
Catalogue  of  mail-order  house,  31. 
Character,  the  ability  to  read,  139- 

140. 
Charter  party,  556-558. 
Checking  deliveries,  903. 
Checking  invoice,  Ci>;-305. 
Checking  partial  deliveries,  303. 
Chief    factors   in   selling  campaign, 

93. 
Claims  department  of  freight  busi- 
ness, 501-504. 
Classes  of  credit,  various,  999-994. 
Closing  a  sale,  145. 
Collection  methods,  3I7-SI8. 


INDEX 


617 


Combination!  of  retail  wUiog  meth- 
ods, S3. 
Corobinationa    of   wholesale    selling 

methods,  SO. 
Commercial  agency.  The,  9T5. 
Commercial  agencies,  need  of,  973- 

i74. 
Commission  merchants,  43. 
Committee, 
Advertising,  80. 
Factory,  87.  , 

OiBce,  89. 
Sales,  88. 
Committee  system. 
As  an  aid  to  cotfperation,  89-83. 
For  manufacturers,  diart  of,  85. 
Practical  results  of,  90. 
Common    law    obligations    of    rail- 
ways,   476-477. 
Compensation  of  salesmen,  191-199. 
Competition  and  railway  traffic,  490- 

491.  454-4A5. 
Competitive    schemes    to    promote 

selling  efficiency,  116-119. 
Complementary  commodities,  499. 
Conference,  sdllng,  190. 
Confidence, 
An  essential  of  selling,  164. 
Relation  of,  to  business,  919. 
Supported  by  contracts,  913. 
Conrad,  Professor,  on  credit,  993. 
Considerations, 
Financial,  179. 
Two  opposing,  170-171. 
Consumer, 
Advantages  of  direct  sales  only 

to,  38. 
Defined,  3. 
Disadvantage  of  direct  sales  only 

to,  38. 
Effect  of  too  ready  credit  upon, 
933. 
Contents    of    the    agency    reports, 

977. 
Contracts  support  confidence,  913. 
Conversational  ability  of  salesman, 
100. 


Cofiperatlon, 

Between  selling  and  other  depart- 
ments, 78-91. 

Induced  by  profit-sharing,  81-89. 

Use  of  tact  in,  79-80. 
Cost  of  agency  service,  979. 
Costs,  important  to  know,  184. 
Courtesy,  156. 
Cowles'    "A    General    Freight   and 

Passenger  Port,"  387-380. 
Creating  desire,  143-144. 
Credit, 

Advantages  of,  993. 

And  banking,  917. 

And  the  credit  man,  919. 

And  traffic  departments,  75. 

Associations  in   Canada,   394-396. 

Capital  or  investment,  943. 

Coflperative  methods,  special  agen- 
cies, 984-991. 

Department,    functions    of,    959- 
957. 

Division  of,  995,  943-951. 

Estimations,  forming  of,  959. 

Extension  in  wholesale  trade,  953. 

Giving,  by  retail  house,  955. 

Giving,  three  essentials  In,  958. 

Granted   by  manufacturing  con- 
cern, 954. 

Granting  of,  to  consumers,  15. 

Information,  sources  of,  958-995. 

Information,   special   sources   of, 
963-995. 

Latitude  of  bank  and  mercantile 
house,  948. 

Mercantile,  935-936. 

Nature  of,  919-994. 

Other  abuses  of,  934. 

Personal,  996. 

Personal,  system  not  well  organ- 
ised, 996. 

Protective,  996-394. 

Rating  of  seller,  184. 

Relation  of  money  to,  916. 

Time  as  factor  in.  991. 

Various  classes  of,  999-994. 
Credits,  installment  house,  956-957. 


618 


INDEX 


Cppdll  Insuranrr,  997. 
Arguments  In  favor  of,  999-300. 
Wcnk  points  in,  300. 
Credit  man.  relation  of.  to  firm,  319. 
Crwiit  men's  nssociations,  307. 

Iniimrtiinee  of,  311. 
Cre«lit    Men,    Vational    Association 

of.  308-310. 
Credit    system,    factors    that    have 

changed,  937. 
Cre<llt  underwriters,  business  houses 

classified  by,  298. 
Criticism  of  agency   methods.  281- 
284. 

Cross-references    for    buying    data, 

necessity  of,  195. 
Cullom    Comniittee    on    "what    the 

traffic  will  bear,"  397. 


Dating,  custom  of,  238. 
"Dead   weight,"   464-463. 
Declining    Importance    of    middle- 
man, 40. 

Definition  of  Salesmanship,  136. 
Deliveries, 

Checking,  203. 

Checking  partial,  203. 
Demand,  knowledge  of,  177. 
Demonstration  of  wares,  149. 
Demurrage, 

And  car  shortage,  487-489. 

Average,  493-495. 

"Bunching  rule,"  487. 

Causes  of,  486-487. 

Defined,  485-486. 

Georgia  Railroad  Commission  on. 
494. 

Higher  charges,  490. 
National     rules     of    the     United 
States,  493. 

Pacific    Car    Demurrage    Bureau 
49»-493.  * 

Reciprocal.  495-497. 
Density  of  traffic,  461-469. 


Department  efficiency. 
Knowledge  of  business  ■  factor  In 

promoting,  190. 
Salesman's    part    In    promoting. 
133-135. 
Department  managers,  61. 
Department  organisation,  variations 

In.  55. 
Department  store,  48. 
Departments   of   house,    familiaritr 

with,  176. 
Dependence  of  manufacturers'  sell- 
ing   organisation    upon    selling 
methods,  67. 
Depreciation,  possibility  of,  179. 
Depressions  and  panics,  relation  of 

credit  to,  217-991. 
Desire,  creating,  14.3-144. 
Differences  between  manufacturer's 
and  .  wholesaler's    or    retailer's 
selling  organisation,  69-70. 
Differential  rates,  415-416. 
Direct  to  consumer  business,  39. 
Disadvantages  of  direct  sales  only 

to  consumer,  238. 
Disadvantages  of  direct  sales  only 

to  Jobbers,  36. 
Disadvantages  of  direct  sales  only 

to  retailers,  38. 
Disadvantages  of  retail   seUing  by 

mall-order,  23. 
Disadvantages    of    selling    through 

retail  store,  15. 
Discounts  and  loans,  249-951. 
Distribution,  Importance  of  problem 

of,  1-3. 
Distributive  rates,  435-436. 
Division  of  credit,  225,  243-951 
Dominion      Transport      Company, 
452.  ' 

Due  diligence,  484. 
Dundas  Road,  The,  337. 
Dun's   Agency,  275. 
Duties    and    reports    of    salesmen. 

128-1.35. 
Duties     of     sales     manager.     114^ 


INDEX 


619 


Economic  depreuion  and  passenger 

business,  469-463. 
Kronomic  progress,  money  sign  of, 

914. 
I-'ducation,  gene  d\,  lAl. 
K  (Torts  to  secure  protection,  396. 
Kly,  Professor,  on  Credit,  W4. 
Kinbargo,  488. 

Kmployds,    acquaintance    with,    im- 
portant, 176. 
Employment  in  factory,  best  meth- 
od, 107. 
Enthusiasm,  165-166. 
Example  of  statement  analysis,  969- 

270. 
I''xamples   of  successful   mail-order 

selling,  93. 
Excess    fare  trains,  4A5-4M,  464. 
Executive  committee,  84. 
Expediency,  or  business  policy,  33- 

35. 
Expenses  of  salesman,  193. 
Express  service,  505  et  ttq. 
Classification.  510-511. 
Defined,  505. 
History  of,  506-508. 
In  Canada,  508-509. 
Rates,  514-595. 
Scope  of,  505-506. 


Piirtors  in  a  sale,  148. 

Kiirtors  in  distribution,  1-19. 

Factors  in  solution  of  first  prob- 
lem, 39. 

Factors  that  have  changed  credit 
system,  937. 

Factory  committee,   87. 

Factory  purchasing  agents,  189. 

Familiarity  with  .departments  of 
house,  176. 

Fidelity,  156. 

File,  quotation,  197. 

Files,    catalogue,    196. 


Financial  coiuiderationa,  179. 
Pink,  Albert,  on  Tiaflc.  397-398. 
Firm  index,   194. 
First  problem  of  manufacture,  3L 

Factors  in  solution  of,  39. 
Foreign  trade  of  Canada,  percent- 
age summaries  of,  544-545. 
Forming  of  credit  estimations,  959. 
Freight 

Cars,  364-365,  495. 

Character  of.  in  lake  trafflc,  534- 

Resources,  34  -346. 
Freight  classification. 
Expansion  of  Canadian,  900-369. 
History  of,  359-353. 
Hr      built,  aM-357. 
In  Canada,  358-359. 
In  iniemational  traffic,  359-360. 
In  United  States,  357-358. 
Necessity  of,  359. 
Recognising  quantity  differences, 
369-364. 
Friendly     relations    with   salesmen, 

187. 
Functions     of    credit     department, 

959-957. 
Future   of   Bankruptcy  Law,  306- 
307. 


General  education,  151. 

General  sales  manager,  63. 

General  system  and  specific  condi- 
tions, 191. 

Georgia  Railroad  Commission  and 
demurrage,  494. 

Goods  to  be  purchased,  knowledge 
of,  179-181. 

Goods  to  be  sold,  training  In  use 
and  construction  of,  105. 

Government   railroads.  349-343. 

Graduate  table  in  express  rating, 
599-593. 

H 

Harter  Act,  569-563. 
Health,  159. 


eao 


INDEX 


Herndon,  Wm^  flnt  expreu  car- 
rier. M7. 

High  way  I, 
Influrncr  on  afrriculture,  3ST. 
Influence  on  trade.  337-338. 

Hinton.  W.  P..  on  the  relation  of 
freight  and  passenger  biuineas, 
460. 

Honesty.  144. 

House-organs,   119. 

Houses  dealt  with,  selling  methods 
of.  185. 

How  Information  is  collected,  975- 
878. 


Illustrations  of  depreciation,  173. 
Illustrative     method,     mail,     index 

cards,  etc.,  313-316. 
Importance  of  credit  men's  associa- 
tions, 311. 
Importance  of  location,  of  various 

houses,  183. 
Importance  of  personal  appearance, 

153. 
Importance  of  site  in  mail  orders, 

17. 
Important  to  know  costs,  184. 
Imports, 
British,  545. 
French,  546. 
Mexican,  546-547. 
United  States,  545-546. 
Inciting  to  action,  144-146. 
Inclination  for  work,  149. 
Index  cards,  mail,  etc.,  SlS-316. 
Index, 

Firm.  193-194. 
Subject,  193-19a 
Inducing  resolution  and  inciting  to 

action,  144-146. 
.  Industry.  157. 
Information, 

Banks  as  source  of,  S92. 
Gathered  by  salesman,  979. 
How  collected,  975-976. 


Method  of  distribatlng^  971. 
Sources  of,  979. 
Initiative, 
Importance  of,  160. 
In  selling,  140. 
Inland  water  transportation 
Affecting  railway  rates,  596. 
Compared  to  rail  transportation, 
596-597. 
Inquiries,    reason    for    not    making 

proper,  997-939. 
Installment  Jiouse  credits,  956-457. 
Insurance. 
And  the  St  Lawrence  route,  A59- 

554. 
Railway,  480. 
Insurance,  credit,  997. 
Arguments  in  favor  of,  999-300, 
Weak  points  in,  300. 
Intelligence  and  general  Information 

of  salesman,  100. 
Interchange  system,  adyantages  of, 
991. 

Interest,    arousing,   141-149. 
International  Rate  Case.  436-4a& 
Interswitching,   499-501. 
Inventory  form,  907. 
Inventory,  perpetual,  906. 
Investment  or  capiUl  credit,  943. 
Investigation.,  methods  of,  958. 
Invoice,  checking  the,  904-905. 
Itinerant    merchant,   prototype   of, 
8-19. 


Jobber,  The, 
Defined,  5. 

Advantages  of  direct  sales  to,  S5. 
Advertising  department  ot,  64. 
Place  of,   in   merchandising   tya- 

tem,  41-43. 
Purchasing  system  of,  910-9U. 
Salesmen  paid  on  commission,  37. 
Sales   organisation   of,   diart   of, 

59. 
Selling  problem  of,  95. 


INDEX 


Ml 


Johnson.  Emorjr  R^  on  Panama  Ca- 
nal, MO-Ml.  A7S-AT4. 
Judging  future  prico,  lU. 


Kanaaa,  rates  to,  40ft. 

Keeping  in  toudi  with  salesmen,  lift. 

Klapp,  J.  O.,  on  average  demurrage, 

404-4«ft. 
Knowledge, 
or  business,  1A1-I64. 
Of  business,  factor  in  promoting 
sales  department  eflcienry,  196. 
Of  demand,  177. 
Of  goods  to  be  purchased,   179- 

181. 
Of  houses  hy  which  buyer  is  em- 
ployed, 174. 
Of  manufacturing  processes,  17A. 
Of  sources  of  supply,  180. 


Lachine  Canal,  SM. 
Uke 

And  canal  movements,  comparison 
between,  ft41-ft49. 

And  canal  routes  in  Canada.  ft99- 
ftS4. 

Rates,  ft40-ft4S. 

Shipbuilding,  ft37-AS8. 

Vessels,  ft36-A37. 
Liability  of  railroads,  478-481. 
limitation  of  bank  credit.  i47. 
Line  boats,  ftftft. 
Liquidation 

In  Canada,  396-339. 

In  England,  339-334. 
Liquidator,   power  of,   398-399. 
Loans   and  discounts,  949-951. 
Location  of  houses,  importance  of, 
183. 

M 

MwI.eod,   Henry  D.,  on.  crises  In 

business,  918. 
Mail,  index  cards,  etc.,  SlS-Slf. 


Man 

Disadvantage  of  seUing  bjr,  M. 
RetaU  seUing  by.  It. 
Mall-order  business,  the. 
And  retaU  selling,  13-84. 
Growth  of,  19. 
Mail-order      department      defined, 

73. 
Mail-order  house,  the. 
Area  of  operations  of,  90. 
Catalogue  of,  91. 
Managers  of  departments,  60. 
Managers,  department,  61. 
Manufacturer,  The, 
Defined,  ft. 
Committee  system  of.  diagram  of, 

8ft. 
Problems  of,  S1-4A. 
Retail  stores.  73. 
Sales  department  organisation  of, 

67-77. 
Sales  organisation  of,  chart  of,  68. 
Second  selling  problem  of,  39. 
Selling  methods  of,  31. 
Selling    organisation,    chart     of, 
method  of  adapting,  76. 
Manufacturing      concern,       credit 

granted  by,  9ft4. 
Manufacturing  processes,  knowledge 

of,  174. 
Meaning    of    recent    amendmoits, 

304-30ft. 
Mental  ability,  IftO. 
Mercantile  credit,  93ft-9S6. 
Mercantile  house  and  bank,  credit 

latitude  of,  948. 
Merchandise  manager,  ftO. 
Merchandising  system.  Jobbers' place 

in,  41-tS. 
Methods  by  which  credit  informa- 
tion is  distributed,  978. 
Methods  of  assigning  accounts,  941- 

949. 
Methods  of  conducting  retail  store. 

I4-Ift. 
Methods  of  coBperation,  78-81. 
Methods  of  Investigation,  9ft& 


62« 


INDEX 


Methods  of  training  salesmen,  103- 
113. 

Methods  of  wholesale  seUing,  36. 

Middlemen,     declining     importance 
of,  40. 

Milllng-in-transit  privilege,  447-440. 

Mixing  privilege,  the,  in  freight  ship- 
ping. 367-371. 

Modification  of  typical  purchasing 
system,  308. 

Money, 
Relation  of  credit  to,  316. 
Sign  of   economic   progress,   314. 

Montreal  hart)or,  550-554. 

Morgan,     E.    F.,     on    commercial 
agencies,  383. 

Murphy,  D.  B.,  on  business  losses, 
339. 

N 

National  Association  of  Credit  Men, 
308-310. 

Form  used  by,  395. 

Purposes  of,  395. 
National  banlcruptcy  laws,  301-303. 
Nature  of  credit,  313-334. 
Nature  of  product,  S3. 


Objections,   how  to  overcome,   145. 
Ocean  traffic, 

Distinguished  ftom  railway  traffic, 
559. 

Factors  affecting,  555-556. 

Freight  rates,  558-560. 

Liability,  560-563. 

Tonnage,  547-548. 
Office  committee,  80. 
Ontario   Wholesale   Grocers'  Guild, 

376. 
Open-mindedness,  158. 
Opportunities  in  salesmanship,  136. 
Opposing  considerations,  170-171. 
"Order"  bill.  483-483. 
Orders, 

Placing,  300. 

Tracing,  301. 


Order  record,  198-199. 
Ottawa  Canals,  336. 


Pacific  Car  Demurrage  BnrMO,  499- 
493. 

Panama   Canal,   569-574. 

Panics  and  depressions,  relation  of 
credit  to,  317-331. 

Particular   sal^   supervision  over, 
114. 

Passenger  fare  a  multiple  of  rate 
and  distance,  457-458. 

Passenger  traffic,  454  «<  mj. 

Pedler,  The,  defined,  8. 

Per  diem  charge,  497-499. 

Perpetual  ip-entory,  906. 

Persistence,  159. 

Personal  credit,  396. 
Relations  of,  to  other  credits,  999. 
System  not  well  organised,  336. 

Personal  interviews,  115. 

Personal  interviews  with  salesmen, 
99. 

Personality  of  salesman,  148. 

Placing  orders,  300. 

Possibility  of  depreciation,  173. 

"Postage  stamp"  rates,  387-380. 

Potential  railway  traffic,  346-347. 

Practical  results  of  committee  sys- 
tem, 90. 

Present  law,  advantages  of,  90S. 

Price  scales,  variable,  186. 

Prices,  judging  future,  181. 

Principles  of  organisation,  46. 

Principles  of  salesmanship,  136-147. 
Training  In,  103. 

Problem  of  distribution,  importance 
of,  1-3. 

Problems,  buyer's,  170. 

Problems  of  manufacturer,  31-45. 

Problems  peculiar  to  business,  meet- 
ing of,  111-113. 

Profit-sharing    to    induce    eoBper»> 
tion.  81. 

Promises,  ability  of  salesman's  house 
to  keep  his,  183. 


INDEX 


623 


Property  stateipentB.  forms  of,  960- 
987. 

Protection,  credit,  396-334. 

Protection,  efforts  to  secure,  996. 

Prototypes    of   itinerant   merchant, 
8-19. 

"ublicity     and     advertising     cam- 
paigns, 40. 

"Pull-bacl("  system  in  ocean  rating, 
571. 

Purchasing  agents,  factory,  180. 

Purchasing  system. 
Jobber's,  910-911. 
Modification  of,  308. 
Requirements  of  adequate,  199. 

Purpose  of  selling  campaign,  99. 


Qualifications  of  buyer,  174. 
Qualifications  of  sales  manager,  94. 
Qualities   important    for    buyer    to 

possess,  188. 
Qualities  of  the  salesman,  148-167. 
Quotation  file  card,  197. 


Railroads, 
And  express  service,  &09-510. 
Compared    with    mercantile    and 

manufacturing     business,     384- 

385. 
Competing  with  water  trafltc,  416' 

419. 
Competition  among,  383-384,  414- 

415. 
Construction  of,  in  Canada,  338- 

340. 
Distribution  of  railroad  nilcage, 

346. 
EvHs   of   parallel    lines    between 

competitive,  385-387. 
Interrelation    of    Canadian    and 

TTnited  SUtes,  349-351. 
Liabiiity  of,  478-481. 
Relation  of,  to  port  competition, 

490-481. 


Relation  of,  to  trade  competition, 
401-493. 


Rs 


Act 


510- 


bill  of  lading,  477-478. 
/        "artage  charge,  453. 
A    t  •  xpress    classification, 

5i'i. 
And  freight  tariffs,  496-497. 
And  passenger  rates,  466-479. 
And  payment  of  charges,  481-489. 
Railway  system  in  Canada,  338  «t 

*eq. 
Rates 
And  cost  of  service,  309-307. 
Based  on   capitalisation,  391. 
Based  on  physical  valuation,  391. 
Classified  (passenger),  471-479. 
Component  facMrs  of,  406-495. 
Concentration,  450-451. 
DifferenUal,   415-416. 
Distance,  389-390. 
Distributive,  435-436. 
Express,  514-535. 
Freight,  353,  381  et  teq. 
Import  and  export,  443-440. 
Ocean,  555-574. 
Passenger,  454  tt  teq, 
"Postage  stamp,"  387-388. 
Railway,  universal  interest  in,  S83> 

383. 
Special  (passenger),  466. 
Standard  (passenger),  466. 
Transcontinental,  433-435. 
Reasons    for    distribution    through 
agents,  brokers,  and  commission 
merchants,  44. 
Reasons  for  not  making  proper  in- 
quiries, 997-938. 
Reciprocal  value  of  a  signed  state* 

ment,  963. 
Record,  order,  198. 
Reglna  Rates  Case,  499,  440,  459- 

453. 
Relation  of  confidence  to  business, 

919. 
Relation   of  credit   man    to    firm, 
318. 


624 


INDEX 


Relation   of  credit   to   panics   and 

depression,  317-931. 
Relation  of  money  to  credit,  316. 
Relation  of  personal  credit  to  other 

credits,  333. 
Relation   of  sales    and    advertising 

departments,  73-74. 
Report,  typical  salesman's,  129. 
Reporter  and  traveling  representa- 
tive, the,  270-371. 
Reports, 
And  duties  of  salesmen,  138-135. 
Kiads  of,  380-1281. 
Salesmen's  purpose  of,   128. 
Requirements  of  adequate  purchas- 
ing systea.  199. 
Retail, 
Buying,  system  in,  308-210. 
Department  organisation,  47. 
House,  giving  of  credit  by,  365. 
Organization,  chart  of,  49. 
Selling   and    mail-order   buaness, 

13-34. 
Selling  by  mail,  18. 
Selling   by   mail,    advantages    of, 

19. 
Selling,    by    n.eans    of   salesman, 
& 

Selling  methods,  combination  of, 

33. 
Store,  buyer  for,  178. 
Stores,  13. 
Stores,     advantages     of     selling 

through,  14. 
Store  sales  department  organisa- 
tion, diagram  of,  49. 
Stores,   manufacturer's,  73. 
Retailer,   The,  defined,  4. 
Retailers, 
Advantages  of  direct  sales  to,  37. 
Disadvantages     of     direct     sales 

only  to,  38. 
Selling   problem  of,  7. 
Retail  Merchants'  Association,  395. 
Rideau  Canals,  338. 
Ripley,  W    Z.,  on  railway  expendi- 
tures in  Canada,  394-395. 


Roads, 
Influence  on  agriculture,  337. 
Influence  on  trade,  337-338. 
Ross,  W.  G.,  on  the  movement  of 
Canadian    grain    to    Americao 
ports,   551•^553. 


S 


Safety,     elements     of,     in     capital 

credit,  344. 
Sale, 

A,  steps   in,    138. 

Factors  in,  148. 

Importance  of  steps  In,  146-147. 
Sales 

And  advertising  departments,  re- 
lation of,  73-74. 

Committee,  88. 

Department  organisation,  46-96. 

Force,    general   information    and 
intelligence  of,  100. 
Salesman,  The, 

Appearance  of,  99. 

As  gatherer  of  Information,  979. 
City,  63. 

Compensation  of,  121-129. 

Conversational  abilify  of,  lOOl 

Defined,  136-137. 

Duties  and  reports  of,  198-135. 

Kxpenses  of,  123. 

Friendly  relations  with,  187. 

General,  62. 

Keeping  in  touch  with,  125. 

Keeping  in  touch  with,  by  letter, 

116. 
Must  observe  closely,  130. 
Part  of,  in  promoting  department 

efllclency,  133-135. 
Personality  of,  148. 
Promises  of,  ability  of  bonae  to 

keep,  183. 
Qualities  of,  148-167. 
Report  of,  a  typical,  199. 
Report  of,  purpose  of,  198b 
Salesmen, 
Different  kinds  of,  79. 


INDEX 


625 


Salesmen   (contiim$d). 

Methods  of  training,  109-113. 

Personal  interview  with,  97. 

Selection  of,  95. 

Specialty,  61. 

Store,  tiS. 

Supervision  of,  114-127. 

System  as  aid  in  selection,  96-98. 

Traveling,  63. 
Salespeople,  A3. 
Sales  manager,  the,  170. 

Duties  of,  114. 

Other  duUes  of,  191. 

Qualifications  of,  94. 
Salesmanship, 

Definition  of,  136. 

Opportunities  in,  166. 

Principles  of,  136-147. 
Scope  of  buyer's  duties,  169. 
Second   selling   problem    of  manu- 
facturer, 39. 
Seller,  credit  rating  of,  184. 
Selling, 

Activities,  superintendents  of  dif- 
ferent kinds  of,  71. 

And  buying,  1-911. 

And  other  departments,  78-91. 

At  wholesale,  35-30. 

By  mail,  99. 

Campaign,  99-101. 

Campaign,  chief  factors  in,  93. 

Campaign,  purpose   of,  OS. 

Campaign  sales  mana^r,  93-101. 

Conference,  120. 

Efficiency   promoted   by   competi- 
tive schemes,  116-119. 

Methods  of  houses  dealt  with,  185. 

Methods  of  manufacturer,  31. 

Methods,  training  in,   108. 

Problem  of  jobber,  35. 

Problem  of  retailers,  7. 

Talks,  109-110. 
Semi-jobbers     and     manufacturing 

wholesalers,  6. 
Settlement,   influence  of  waterways 

upon,  335-336. 
Shedden  Company,  452. 
C—III— 40 


Signed   statement,   reciprocal   value 

of,   263. 
Sincerity,    155. 
Sources  of  credit  information,  958- 

995,  263-395. 
Sources   of   supply,   knowledge   of, 

189. 
Special  agencies,  credit  cooperative 

methods,  984-991. 
Specialty  salesman,  10-13,  61. 
Specific  conditions  and  general  sys- 
tems, 191. 
Speculative  buying,  174. 
Spillers  and  Bakers  Case,  US. 
Standard  mileage  tariffs  in  express 

service,  514-518. 
Standard  selling  talks,  109-110. 

Adaptation  of.  111. 
Statement  analysis,  example  of,  968- 

970. 
Statements,     property,     forms     of, 

960-967. 
Statements    testing    reliability    of, 

959. 
Statistical  system,  typical,  131-139. 
Steps  in  a  sale,  138. 

Importance  of,  146-147. 
Subject  index,  199-193. 
Subsidies  of  steamships,  554-555. 
Suggestion  in  selling,  144. 
Supervision  of  salesmen,  114-127. 
Supervision    over    particular    soles, 

114. 
Superintendents   of  different  kinds 

of  selling  activities,   71. 
Suspended  accounts,  318-319. 
System, 
As  an  aid  in  selection,  96-98. 
In  buying,  191-211. 
In  retail  buying,  208-910. 
Variations  in,  90. 


Tact, 
Importance  of,  15S. 
In  buying,  186. 
Use  of,  in  codperation,  79-80. 


626 


INDEX 


Talbot  Road,  The,  337. 
Tariffs, 
Class,  404-4M. 
Commodity,  404-406. 
Competitive,  430-433. 
Freigiit,  363,  426  et  $«q. 
Local  (express),  518-519. 
Special,  430-433. 
Standard  mileage  (express),  414- 

518. 
Town,  436-443. 
Transfer,  518-519. 
Task  of  the  buyer,  the,  173. 
Territory,  assignment  of,  124. 
Testing   reliability   of  a   statement, 

359. 
Three   essentials    in    credit    giving, 

258. 
Thornton,  Henry,  on  notes,  250-251. 
Time  as  factor  in  credit,  221. 
Tonnage  of  ships. 
Inland,   547. 
Ocean,  547-548. 
"Too  ready  credit,"  effect  upon  con- 
sumer,  233. 
Town  tariffs,  436-442. 
Tracing  orders,  201. 
"Traders'  tariff"  arrangement,  439- 
440. 

Traditional    factors  in  distribution, 

9. 
Traffic, 

Actual,  347. 

And  credit  departments,  75. 

Combined  inland  and  ocean,  539- 

540. 
Density  ot,  461-462. 
Freight,  comparisons  of,  406-408. 
Importance  of  freight,  381-382. 
International,  freight  classification 

of,  359-360. 
Interrelation  of  Canada  and  the 

United  States,  349-351. 
Ocean,  547-548,  555-574. 
Of  lakes,  character  of  freight  of, 

534-535. 
Potential  railway,  346-347. 


What   the  traffic  will   bear,   39T- 
40a 
Training, 

In  construction  and  use  of  goods 

to  be  sold,  105. 
In     principles    of     salesmanship, 

103. 
In  selling  methods  108. 
Of  salesmen,  102. 
Tramp  vessels,  555-556. 
Transit  arrangements,  446-451. 
Transportation  of  Canadian  grain, 

535-536. 
Tran8|)ortation  of  packages,  22. 
Traveling    representative    and    re- 
porter, the,  270-271. 
Trunk  lines,  influence  of,  341-343. 


U 

Uniformity,   lack    of,   in    wholesale 

selling,  58. 
Universal  business  activity,  buying, 

168. 


Vaile,    Samuel,   and    "stage"    tariff 

system,  473. 
Variable  price  scales,  186. 
Variations  in  system,  90. 

W 

Walsh,  J.  E.,  on  reciprocal  demur- 
rage, 495-496. 
Water    competition    affecting   rates 

of  railway  traffic,  416-419. 
Waterwajrs, 
Influence  on  settlement,  335-336. 
Efficiency  of,  597-528. 
Weak    points   in    credit    insurance, 

300. 
Welland  Canal,  336,  531-532. 
Wellington's  "Economic  Theory  of 

Railway   Location,"  388-389. 
West  Shore  Cose,  387. 


INDEX 


627 


What  the  tniffio  will  Iwar,  Xt7-im. 
Wheeler.  W.    II.,  on   .spcrial  Hgeney 

wiirk,  i'M. 
Wheeler,  W.  R.,  ooinparing  rail  and 

water.  .Ji(i-5?7. 
White,  Horace,  on  bank  loans.  Ji»- 

2V9. 
Wholesale  Groeers'  Oiiild,  3:35. 
Wholesale  selling.  ;25-30. 
B_v  salesmen.  27. 
I-Hok  of  iinifomiity  in.  58. 
Methods  of,  2Ck 
.Methods,  combination  of.  ;{0. 
Orfranization,  special  applicntion.s 
of.  fi5. 
W  holesale  store,  buyer  for,  178. 
Wholesale    trade,   credit    extensions 
in,  3S3. 


Wholesalers,  nianiifacturing,  6. 
Wisconsin  Railway  Commisition, 
Computing      terminal      costs      in 

freight  liusineNs,  411. 
On  car  raeasuranent.s,  SflS-.Tfifi. 
On    regulation    of    freight    rates, 
.•«.i-3.0f!. 

On   "what   (he   traffic  will   bear,* 
WO. 
Wool  shipment.s,  411-41.1. 
Work,  inclination  for,  149. 
Work  of  salesmen,  38. 


/.immernmn.    T.    ,1.,   on   commercial 

agencies.  27 i. 
Zone  tariff  svstem,  473-471. 


